A new report from publisher Bloomsbury Professional has found that the amount of money bought in by HMRC investigating IR35, has increased five-fold over the past year.
According to the report, IR35 investigations, which is the legislation bought in order to prevent ‘disguised’ permanent employment, more than doubled from 23 (2010-11) to 59 (2011-12), and in 2009 there were just 12 people investigated under IR35.
Contractors across the UK will be interested to hear that HM Revenue & Customs managed to recover £219,000 in the 2010-11 tax year, but in 2011-12 that figure hit more than £1.24 million.
Bloomsbury’s managing director Martin Casimir, explained, “The crackdown on IR35 fits in with the wider picture of HMRC taking a much more aggressive approach to all sorts of tax cases where it suspects it is missing out on tax revenue.
“There are individuals that will try to use personal service companies to avoid tax, but for those with more than one employer or those working on an interim basis, personal service companies are a legitimate way of working.
“IR35 imposes a substantial cost on contractors as they try and comply with the legislation. It can be hard to ensure compliance without proper advice.”
A spokesman for HM Revenue & Customs said, “HMRC robustly tackles tax avoidance and works hard to ensure that people pay the right amount of tax at the right time.
“We have strengthened our specialist teams who enquire into IR35 cases and will further increase coverage in 2012/13. Whether IR35 applies is always based on the facts of the case. HMRC does look behind the reality of the arrangements to consider whether a relationship is one of employment.
“We have been reviewing our approach to IR35 since 2011. In addition to making more enquiries we have issued new guidance to help to make the IR35 easier to understand and we operate a dedicated helpline to assist customers to understand their legal responsibilities.”