The Foreign Office changed the IR35 status of 42 contractor engagements during 2025-26, according to its latest annual report.
The Foreign, Commonwealth and Development Office reassessed 50 engagements during the year. The status changed in 42 cases, while only eight maintained their previous status.
During the year, the department had 500 engagements covered by the Off-Payroll Working rules. Of these, 438 were assessed as inside IR35 and only 62 as outside, representing an inside-IR35 rate of almost 88%.
This is a sharp change from 2024-25, when the figures were much more evenly divided: 241 engagements were inside IR35 and 211 were outside.
The FCDO said its review had produced a “significant reduction of out-of-scope engagements in the Department”.
Tax bill remains unknown
The department made a voluntary disclosure to HMRC in 2024-25 after finding problems with some of its previous IR35 decisions.
It has now set aside an undisclosed amount for back taxes covering the five years from 2021-22 to 2025-26. HMRC is still reviewing the case and has not yet agreed the final bill.
The FCDO expected to disclose its final IR35 liability in its 2025-26 accounts. That has not happened. It now says the “final agreed liability will be fully disclosed” in its next annual report.
The accounts do not reveal how much the department expects to pay. They confirm only that it has set aside an estimated amount for backdated tax while the HMRC review continues.
Temporary staff spending rises
The FCDO also spent considerably more on temporary staff during the year.
The total rose from £40.36 million in 2024-25 to £48.48 million in 2025-26, an increase of just over 20%.
The Foreign Office is not the first public body to face a substantial tax bill after reviewing its contractor assessments. Natural Resources Wales recently paid HMRC £14.6 million following years of errors in its IR35 determinations.
The Post Office has an outstanding liability of £104.4 million, with government funding being used to settle its historic IR35 tax bill.
Under the Off-Payroll Working rules, organisations must decide whether the rules apply to contractors working through their own companies. They must also take reasonable care when making those decisions.
Source: FCDO Annual Report and Accounts 2025-26, pages 123–124.