Taxman 'failing to enforce IR35'
Confusion among tax officials about IR35 and how they should apply it may be costing the Treasury as much as one billion pounds each year, a leading tax expert has declared.
Speaking to Accountancy Age, Anne Redston, of the Chartered Institute of Taxation, cited the figure as the potential loss government has incurred by not having a proper hold on the tax rule.
Although the Intermediaries Legislation can be used to tackle composite or limited company contractors, HM Revenue & Customs appears not to be pursing the full breadth of its powers.
"I think that enforcement is the heart of the problem. They have the laws in place but it's about enforcing them," Ms Redston said.
"I am not talking about the one-man businesses such as the membership of the PCG. The PCG's membership has made great efforts to understand these rules."
Contractor UK has already reported that, where HMRC have targeted their enforcement on this type of company, most of the effort has been wasted.
The evidence, first published in September, shows that out of 1,254 investigations overseen by the Professional Contractors Group (PCG), just three resulted in money being paid to the taxman.
At the time, John Kell, policy officer at the group reflected: "IR35 is so awkward and complicated that even HMRC cannot understand how it works."
Experts at SJD Accountancy, who have worked on over 300 IR35 enquiries, say just one case they were involved in concluded in monies owing.
"On the face of it, HM Revenue and Customs appears to be wasting money on IR35 investigations.
"The income generated from a handful of successes will be far less than the cost of 500 investigations," David Wilsdon, a director at SJD has told CUK.
Any shortfall in the Treasury's collection of revenue resulting from IR35 "is bound to crop up" in next month's Pre-Budget Report, an editorial by Accountancy Age claims.
The editorial adds that HMRC could chase each individual within a composite if they are avoiding tax, but Ms Redston said this would require hundreds of officials to target individuals one by one.
One alternative would be for, the authority to establish that the promoter was a shadow director; if this is the case the individual(s) running the composites could be sent personal liability notices to those, thereby making those individuals liable for the National Insurance not paid by the composites.
Ms Redston reflected: "HMRC has a lot of weapons it is not using, and I'm not sure why. It seems to me it could."
In March, chancellor Gordon Brown gave the first sign that the tax issues of composite, umbrella and managed service companies would be treated differently to those of other limited companies.