Contractors' Questions: Are IR35 investigations about to step up?

Contractor’s Question:  What is the main message that HMRC are sending with its new IR35 guidance for contractors, under which personal service company owners are categorised as a high, medium or low risk of falling within the legislation? Is greater enforcement of IR35 incoming?

Expert’s Answer: The main over-arching theme of the IR35 announcement is indeed that of increased enforcement activity by HM Revenue & Customs.

For this reason, I believe it is crucial for self-employed professionals to be able to demonstrate and provide evidence of their employment status, so my advice is to employ a specialist with genuine expertise to ensure this happens.  With the right advice and support, safeguarding your genuine self-employed status is not too onerous.

Overall I would say that there are a number of encouraging aspects to the HMRC approach and we are hopeful that the enforcement activity from HMRC is implemented in the right way. Unfortunately, the IR35 business tests are in our view misguided and unhelpful at a time where the government is supposedly committed to tax simplification. 

I would prefer that these tests were completely scrapped and HMRC press on with the revised guidance and the improved scenarios.  HMRC is now in a ‘test and learn’ phase and states that they will develop things as they go – I hope this is carried out in the right spirit.

The expert’s answer is based on the comments of Martin Hesketh, founder of contractor accountancy firm Brookson.

Friday 11th May 2012