Foreign Office moves 438 of 500 contractor roles inside IR35
A year after admitting hundreds of its status assessments were wrong, the department still cannot say what it owes HMRC. Small firms get no such patience.
The Foreign, Commonwealth and Development Office has determined 438 of 500 contractor engagements to be inside IR35 in 2025-26. Sixty-two were determined outside.
A year earlier the split was close to even: 241 inside, 211 outside. The proportion inside has gone from roughly half to almost 88 per cent.
The figures come from the department's annual report and accounts. The same accounts show the department still cannot say how much tax it owes HM Revenue and Customs.
The FCDO has told HMRC that a review of its earlier determinations moved a "high number" of engagements from outside IR35 to inside. It has acknowledged it will be liable for backdated tax and possible penalties.
Last year's accounts said the final agreed liability would appear in the 2025-26 accounts. The latest report says the HMRC review is still running and the figure will now appear in the next set.
Mike Wood, Conservative MP for Kingswinford and South Staffordshire, tabled two written questions this month to the Treasury and the FCDO about the accounts and the tax bill. The answers came from James Murray, Financial Secretary to the Treasury, and Uma Kumaran, Labour MP for Stratford and Bow.
Neither answer explained how the errors happened, where liability sits, or when the final bill will be known. Both cited the ongoing investigation.
Dave Chaplin, chief executive of the compliance firm IR35 Shield, says an earlier freedom of information response showed the department used HMRC's Check Employment Status for Tax tool, known as CEST, and worked with the recruiter Public Service Resourcing. On his account, the FCDO issued status determination statements to both the recruiter and the workers.
Chaplin says that if PSR became the deemed employer, the government needs to explain whether liability rested with the department or the agency.
Spending on temporary staff at the FCDO rose from £40.36m in 2024-25 to £48.48m in 2025-26.
Other public bodies have already settled. The Department for Business and Trade agreed to provide £104.4m to cover the Post Office's outstanding IR35 liability, and Natural Resources Wales paid £14.6m to HMRC, including a £2.9m penalty suspended for 12 months.
The rules moved for private hirers in April 2026. The turnover threshold at which a company counts as small rose from £10.2m to £15m, and the balance sheet threshold from £5.1m to £7.5m.
Firms below those limits no longer make the status call; it goes back to the contractor's own company. Firms above them carry the same exposure the Foreign Office is now carrying, without a departmental balance sheet behind them.
A founder using contractors has two practical things to check: whether the new thresholds have taken the decision off their desk, and whether their own CEST-based determinations would survive the review the FCDO has just run on itself. The department got two years to work out what it owes. A small company gets an assessment and a penalty.