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IR35 'Crackdown' - Keeping HMRC Busy

4th Nov 2013
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Following HMRC's much publicised Business Entity Tests making an appearance in May of last year, Her Majesty’s Revenue and Customs has been hot on contractor’s cases, launching a self-proclaimed ‘crackdown’ on tax avoidance and IR35.

IR35 is very much the hot potato of hot potatoes within the contracting sector, as along with the freelancers themselves, companies and businesses from accountants to insurers must be clued up on the legislation’s laws and rules, and must ensure that they are ‘IR35 savvy’ before offering their specialist services.

So let us review HMRC’s IR35 ‘crackdown’. Has the legislation been keeping the taxman busy? And what exactly has our lucid Hector done to enforce such an intricate legislation?

Business Entity Tests

The Business Entity Tests are often the first port of call that any accountant will advise their contractors in going to when concerned about IR35. Because of the nature of the legislation however, most who take the test will fail, falling within the ‘medium’ or ‘high risk’ category. Instead of running to the hills in fear of the Revenue in this case, contractors should not worry, as the BETs do in no way determine whether or not an individual is ‘caught’ by IR35. Sure the Business Entity Test scores have been misinterpreted by many as a sure fire way of getting a visit from the dear old taxman, but in a contractor’s defence, why wouldn’t they?

As a result of the flimsiness of the BET test scores, many argue that the entire concept is irrelevant and pointless. In response, HMRC assure contractors that the BETs are in fact simply a tool to test their compliance as opposed to an official ‘IR35 Test’. Whatever your thoughts on the Business Entity Tests, the message each score gives is ‘assure compliance’, and although this may be considered by some as inadequate information, it is the only way of making sure that Hector doesn’t begin to take a keen interest into a contractor’s working practises.

IR35 Specialist Teams

HMRC, in a bid to increase and strengthen combatting contractor tax avoidance, launched their fourth IR35 specialist team earlier this year. By opening an office in Bradford, this new body of professionals will complement the existing ones in Croydon, Salford and Edinburgh, marking four crack teams tasked solely with IR35 investigations. This implementation saw an increase in IR35 related enquiries this year alone, and shows no intention of slowing down.

IR35 Awareness

IR35 awareness has always been high on the Revenue’s list of to do’s, and this year IR35 has taken center stage. Because of high profile contractors making the news (Jeremy Paxman & Fiona Bruce both being ‘outed’ as limited company professionals), popular news sites such as the Mail Online and the BBC page have been rife with commenters discussing and debating IR35 and its regulations. I can imagine that the taxman was rubbing his hands with glee.

It has been a busy year for HMRC indeed, and with 2014 just around the corner, who knows what HMRC has in store for contractors.

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