HMRC increases its crackdown on suspected IR35 abuses

HM Revenue & Customs (HMRC) has more than trebled its number of investigations into suspected IR35 abuses in the seven months since April 2012 compared to the whole of the previous year.
Thu, 21 March 2013
According to tax and accounting group Bloomsbury Professional, HMRC opened 193 new investigations compared to 59 in the previous tax year.

This is very much in line with the government’s promises to crackdown on tax avoidance made in last year's Autumn Statement, a stance that looks certain to be maintained following yesterdays' Budget.

IR35 is 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 legislation is designed to prevent freelancers paying lower tax rates and National Insurance on earnings when HMRC thinks they are really an employee.

Despite HMRC’s crackdown, so far the 193 new investigations have failed to turn up any compliance failures.

Martin Casimir, managing director at Bloomsbury Professional, says: “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.”

Casimir adds: “IR35 is a good example of how out-of-date the UK tax system is.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.”

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