I know how dull this sounds, but I've been reading the Cabinet Office's annual accounts. A headline about its IR35 bill sent me looking for the detail, and the detail turned out to be the better story.
Most of it is what you'd expect. Pensions, property, a lot of tables. I skimmed plenty of it, if I'm honest. But tucked into the notes on provisions, a couple of hundred pages in, is a figure anyone who hires IT contractors should look at twice.
The department has set aside just under £38.5m, interest included, for income tax and National Insurance that HMRC says should have been collected from its off-payroll workers. And when HMRC went looking for problems, two of the four groups of contractors it sampled were digital developers and content designers.
Which makes it a tech contractor story as much as a Whitehall one.
What went wrong at the Cabinet Office?
Public sector bodies have been responsible for deciding whether their contractors sit inside or outside IR35 since the rules changed for them nine years ago. According to the Cabinet Office's 2025-26 annual report and accounts, HMRC concluded last October that the department's historic processes were inadequate and that reasonable care had not been taken. The gross liability for the whole period, simple interest included, came out at £38.467m.
In February the department paid £15m to HMRC up front, without prejudice, which leaves a provision of roughly £23.5m on the books. It's still arguing with HMRC over parts of the status opinions and the method used to reach that number. A Cabinet Office spokesperson told Recruiter the figure is an upper estimate rather than a final bill.
Then there's the penalty.
A finding that reasonable care wasn't taken can bring a penalty of 15% to 30% of the net tax owed, and the accounts put the worst case at £8.9m. The department expects HMRC to suspend it if compliance conditions are met, as has happened elsewhere in Whitehall. Maybe. I wouldn't fancy explaining that bet to a board.
Why does it matter which roles HMRC sampled?
The Cabinet Office's provision rests largely on HMRC's review of four sampled groups, namely review team leaders, commercial assessors, content designers and digital developers. Everyone else was estimated by applying a 39% weighted average liability from those samples across about £89.2m of off-payroll spend. Where worker details were known, a 28% offset was applied for tax the individuals had already paid.
Put simply, HMRC looked hard at a few typical contractor roles, decided a good share of that work looked like employment, and scaled it up across nearly a decade of spending.
And I'm not surprised developers made the sample. On a long digital programme a senior contractor joins the stand-ups, picks tickets off the same board as the permanent engineers and sits in the same retros. A few months in, someone is approving their holiday in all but name.
None of that is unusual. It's how good delivery teams run. But it is also the pattern that makes an outside determination hard to defend later, especially if nobody wrote down at the start why the engagement was different from a job.
Does a private sector business carry the same risk?
Yes, if it's medium or large.
Private sector clients that meet two of the three size tests have carried the same duty to decide status for over five years, and if they get it wrong the tax can come back to them. HMRC's guidance says a status determination statement has to give your conclusion and the reasons behind it, or the worker's tax and National Insurance become your problem.
The size tests moved recently. Forvis Mazars' summary of the change puts the new limits at £15m turnover and a £7.5m balance sheet, with the 50-employee test unchanged. For small clients the decision sits with the contractor's own company instead. Check with your accountant before relying on that, because the timing depends on your financial year.
What does reasonable care look like when the project only lasts six months?
Less paperwork than people fear, but more thought than a lot of businesses give it. Short projects are where corners get cut, because the work feels temporary and the contract gets signed in a rush to hit a start date.
From where we sit, the employers who handle it well tend to do a handful of things.
- Each role gets assessed on its own, not a whole department stamped one way.
- The determination describes how the work will really run, including who directs it.
- Someone owns a review date, because a three-month build can drift into an eighteen-month embedded role.
- Evidence gets kept where a person could find it in five years.
That last one sounds dull, but judging by the Cabinet Office's accounts it matters most. HMRC's complaint wasn't just a handful of wrong answers, it was that the process behind the answers didn't show reasonable care.
Is a blanket inside determination the safe option?
Not really, it just moves the cost somewhere else. Plenty of larger organisations responded to the private sector rules by putting every contractor inside IR35, which removes the tax risk but changes the conversation with the people you're trying to hire. And senior contractors either price that in or look elsewhere, and the good ones usually have somewhere else to look.
We see it most with architects, DevOps leads and experienced developers, where the pool is small to begin with.
A hiring manager has a project starting in a month, the only two people with the right stack want outside engagements, and procurement has a policy that says no.
Sometimes the honest answer is that the role isn't a contract at all. If you need someone embedded in your team for a year, working your backlog, a fixed-term or permanent hire may be the cleaner route. We wrote recently about how contract IT hiring picked up before permanent hiring did, and that shift is part of why these status questions keep coming up.
Or it really is a contract, in which case the job is IR35 compliance you could defend to HMRC on paper and on the ground, so you can offer the role on terms a strong contractor will accept.
What should IT employers take from the Cabinet Office bill?
Mostly that HMRC looks at how contractors actually work, and the contract is only part of that picture. The Cabinet Office had lawyers, procurement teams and a central government rulebook, and still ended up with a nine-year liability because its process couldn't show reasonable care.
Your business probably has none of that infrastructure. It probably has far fewer contractors too, which helps. But a smaller business also has less room to absorb a surprise tax bill.
Nobody reads government accounts for fun (I certainly didn't), but the paragraph about developers and content designers is worth ten minutes before you sign off the contractor for that project that has to start next month.
If you're weighing up contract against permanent for a tech role, send it to our IT recruitment team when you're ready and we'll tell you honestly which way we'd go.
