• 193 new investigations in less than a year
HMRC has cranked up its crackdown on suspected IR35 abuses, opening 193 new IR35 investigations in the first half of this tax year* – treble the 59 IR35 investigations HMRC opened in the whole of the previous year according to a study we have taken out.
IR35 is a piece of tax legislation that allows the Government to tax freelancers – who may work using ‘personal service companies’ – as though they were disguised employees of their clients. The controversial legislation is designed to prevent freelancers paying lower tax rates and national insurance on earnings when HMRC thinks they are really an employee.
A political storm erupted around IR35 in spring 2012 following revelations that senior figures at public sector organisations including the BBC and the Department of Health were being employed through ‘personal service companies’, which may have enabled them to lower their tax bill.
HMRC announced changes to the way it would police IR35 in May 2012 following these revelations.
Martin Casimir, Managing Director at Bloomsbury Professional, says: “HMRC has been stung into action by a handful of very high profile cases where individuals and employers may not be IR35 compliant. Ordinary contractors and freelancers are now dealing with the fallout.”
Despite HMRC’s crackdown, so far, the 193 new investigations have failed to turn up any compliance failures.
Martin Casimir says: “IR35 is a very problematic piece of legislation, as it adds unnecessary complication to tax system and makes it hard for ordinary contractors to work out their tax bills. It is very easy to fall foul of the legislation.”
“Now ordinary freelancers and contractors have the added complication of HMRC breathing even more closely down the back of their necks.”
Martin Casimir adds: “It is a common misconception that people only use personal service companies to avoid tax. For some individuals with more than one employer or for those working on a temporary basis, registering as a personal service company is a legitimate way to work.”
“IR35 is a good example of how out-of-date the UK tax system is. It doesn’t take into account the changing face of employment, and assumes that all taxpayers work in the same job for a long period of time.”
Bloomsbury Professional says that the soaring number of investigations HMRC is undertaking into IR35 abuse is representative of HMRC’s increasingly aggressive pursuit of potentially missing taxes as it tries to hit tough tax yield targets.
* First seven months from 1st April 2012
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Nick Mattison or Nick Cosgrove
Mattison Public Relations
Tel: +44 (0)207 6453636 / 07963 496 144