UK Cabinet Office takes £7.8M hit to kill off recruitment system

Department told to ditch it to get back in line with Shared Services Strategy, plus faces £8.9M fine for IR35 shambles

The UK Cabinet Office has scrapped a recruitment platform, recording a £7.8 million loss, while disclosing a potential penalty of up to £8.9 million over its handling of contractors' tax status.

The department's annual report for 2025-26 said the Civil Service Jobs Applicant Tracking System (ATS) Programme, a central government plan for a unified, cross-departmental hiring system, was being closed to "align with the Shared Services for Government Strategy," which the Prime Minister's department also manages.

The report said axing the program resulted in a "constructive loss" of £7.8 million.

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In March, a report from the National Audit Office said the ATS was an example of an interdependency that has not been effectively managed in the Shared Services Strategy, which is designed to bring Whitehall departments onto a common set of software-as-a-service (SaaS) enterprise applications.

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The Cabinet Office's annual report says closure will allow a new project better aligned with that strategy.

"The program consistently identified lack of adoption from shared services clusters as a risk. At various points between 2023 and 2025, some shared services clusters raised concerns about the ATS program and stated that they would prefer to use the ATS functionality of their own ERPs over the new central platform. Despite this, Cabinet Office did not assess the need for a reset as soon as it could have, which made it challenging to assess alternative options for delivering an ATS. The ATS program was reset in October 2025," the report said.

At the time, the Cabinet Office estimated that the total costs of the program reset would be £26 million to £38 million.

The annual report estimates the Cabinet Office's liability for unpaid tax and National Insurance under IR35 off-payroll working rules, including interest, at £38.5 million. The rules affect many tech contractors working through their own companies. It paid £15 million toward settlement in February 2026, leaving a £23.5 million provision at year-end. The final settlement remains under negotiation.

The department also disclosed potential HMRC penalties of up to £8.9 million, but considers payment unlikely because penalties can be suspended subject to compliance conditions.

The report said: "The department has identified a remote contingent liability regarding potential financial penalties from HMRC relating to historic off-payroll working (IR35) compliance. In October 2025, HMRC concluded that the department's historic processes were inadequate and reasonable care was not taken, which can attract a penalty of 15 percent to 30 percent against the net tax liability before interest."

Dave Chaplin, CEO of IR35 tax compliance firm IR35 Shield, said the HMRC assessment raises serious questions about compliance at the very heart of government.

"The lesson for every organization engaging contractors is that claiming to take reasonable care is not the same as being able to demonstrate it. IR35 determinations must be supported by robust processes, accurate information, and evidence that the rules have been applied properly. Getting it wrong can have consequences far beyond the original tax bill," Chaplin said. ®