UK government departments continue to struggle with applying IR35 tax rules for contractors, with the Foreign, Commonwealth and Development Office (FCDO) still working through a lengthy review of its off-payroll worker assessments for a second consecutive year. The persistent difficulties highlight ongoing weaknesses in how central government implements tax legislation it expects private businesses to follow rigorously, raising questions about fairness and competence in public sector administration.

The FCDO's 2024-25 accounts revealed 243 workers were reclassified as falling within IR35 scope after a full review, with a voluntary disclosure made to HMRC and backdated tax liabilities accrued. The latest 2025-26 figures show this number has surged to 441, with the proportion of contractors considered outside IR35 reportedly collapsing from around half to just 12 percent, according to IR35 Shield CEO Dave Chaplin. The department's process relied on HMRC's CEST tool, whose usage has dropped roughly 70 percent in two years amid implementation problems. IR35, tightened in April 2021, aims to curb disguised employment and has generated £4.2 billion in extra tax revenue, exceeding its £1.2 billion annual target, though a 2022 Public Accounts Committee report found government bodies owed HMRC £263 million in 2020-21 due to incorrect rule administration.