In the Department for Business and Trade (DBT) subsidy to Post Office Limited (POL), the DBT is proposing to award POL the following:
- a grant of up to £37 million to cover the costs of acting as a core participant in the POHIT Inquiry and operating the Remediation unit; and
- a grant of up to £104,441,811 to cover POL’s historic IR35 tax liability due to a misclassification of contractors engaged between 2017 and 2022.
As further context, IR35 legislation is a tax measure, introduced in 2000 and reformed in 2017, and aims to prevent ‘disguised employment’ by ensuring contractors who work like employees are taxed similarly. Under these rules, organisations engaging contractors must determine whether they fall ‘inside IR35’ (taxed as employees) or ‘outside IR35’ (self-employed). Misclassification can result in significant liabilities for unpaid tax and National Insurance contributions.
Our key takeaways from the Subsidy Advice Unit (SAU) report are:
- Assessments covering IR35 tax liability should consider the effect on competition and investment in the UK where contracted workers have been engaged in the commercial operations of the recipient. In this case, the assessment explained that the IR35 tax liability arose due to actions POL took in responding to the need to set up a Remediation Unit with contractors brought onboard either to staff the Remediation Unit or to backfill POL employees who had moved over to work on the Remediation Unit. It should have also clarified whether any of the contracted workers had engaged in the commercial operations of POL.
- Where multiple referrals are made to the SAU in relation to financial assistance to the same recipient, for the purposes of the assessment of Principle B (proportionality), the funder should take into account the impact of the support cumulatively. In this case, this was particularly important given the support was the second modification or update to the original restructuring plan made since October 2023 (which DBT recognised).
- This is a helpful reminder that although the subsidy being referred should be assessed on its own merits, acknowledging relevant context such as previous and potential future support should form part of the overall proportionality assessment.
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