IR35 status and the new HMRC penalties regime from April 2009

Contractor Tax Protection
Tax Liability Cover (TLC35) and
IR35 insurance from Qdos Consulting

IR35 status and the new HMRC penalties regime from April 2009

Posted Feb 13, 2009

A new HMRC penalty regime takes effect from 1st April 2009, covering errors made in tax returns and other related documents for tax periods from 1st April 2008 onwards.

The new rules will impose greater penalties where people haven't taken sufficient care to get matters right, with the taxpayer taking far more responsibility to ensure they submit accurate information to HMRC.

IR35 Status - What is "reasonable care"?

According to HMRC guidance, the definition of "reasonable care" isn't an exact science:

"Every person must take reasonable care, but 'reasonable care' cannot be identified without consideration of the particular person's abilities and circumstances. HMRC recognises the wide range of capabilities and circumstances of those persons completing returns or claims."

What does it mean for contractors?

From 1st April 2009, contractors will need to prove that they have taken "reasonable care" in showing that their contracts are not caught by the IR35 rules.

More than ever, contractors should always keep accurate tax (and related) records.

What steps should contractors take?

In a recent article on IR35 status, Bauer & Cottrell made it clear what contractors need to do in order to comply with the new rules:

"IR35 concerns 'relevant engagements' which unfortunately means each individual contract and extension. You should have each contract reviewed together with the working practices. If a contract has been extended resulting in any changes to the services provided and/or the working practices this will also need to be reviewed. This action will also protect against the new HMRC penalty regime which comes into effect in April 2009."

The recent Dragonfly IR35 verdict illustrates why, more than ever, contractors should review their IR35 status and mitigate their exposure to risk.

In its October 2008 report (PDF), Professional Passport, recently pointed out that, as a minimum, contractors should:

"...ensure that all contracts, extensions and renewals are supported by a professional status review to demonstrate 'reasonable care' and prevent HMRC from imposing penalties."

All content ©Contract Eye Ltd. Protected by Copyscape. Please scroll down for related articles.

Contractor Services

Professional Indemnity Insurance - Essential cover from Hiscox
The fair umbrella company - take home more pay with paraplus
InTouch Contractor Accounting - specialist online service & great advice
Parasol - the UK's favourite umbrella company
Contract Experts - ClearSky Accounting on 08000 325 326
Helix Management Ltd - Up to 90% retention. Same day payments.
Umbrella Company - 12,000 contractors can't be wrong!
Together we're stronger! - Join PCG, representing contractors
Cloud 9 Group - Umbrella Solutions only £27.50 per week
Qdos - IR35 experts - Providers of low cost contractor insurance
K & B Accountancy Group - Fixed fee contractor accounting only £75pm
Free IR35 & Tax Review - Call ICS on 0800 195 3750
Contractor Mortgages - the best deals, based on your contract rate alone!

Would student loan boss have been caught by IR35?
Following news that the Student Loans Company boss has been receiving remuneration via his own personal services company, we ask whether this would this have made him a classic target for an IR35 investigation.

Does IR35 apply to sole traders?
Although the Intermediaries Legislation was created to target alleged disguised employment by limited company directors, how are sole traders affected by IR35?

Tax Tribunal hearing deems contractor to be part-caught by IR35
John Spencer, a retired IT specialist, experienced mixed emotions at a recent First Tier Tax Tribunal hearing, where a long-term engagement was deemed to be only partially subject to the IR35 rules.

IR35 Forum - HMRC proposals to target higher risk IR35 targets
The latest IR35 Forum minutes show that advances have been made over how HMRC proposes to more accurately identify IR35 targets in the future.

IR35 raises millions each year from self-certifying contractors
A new Freedom of Information Request reveals that significant sums of tax have been raised from contractors who self certify themselves as being caught by IR35.

Fewer HMRC IR35 status enquiries, but tax yield per case soars
HMRC has released further data showing that the number of IR35 status enquiries has dropped dramatically since the early 2000's, but the tax raised per enquiry in more recent years has increased greatly.

IR35 Forum - HMRC seeks further industry help in improving IR35 administration
The latest IR35 Forum minutes show that HMRC is seeking further feedback from industry stakeholders to help improve the way IR35 is currently administered.

IR35: is it possible to balance the interests of contractors and HMRC?
Marc Morris from 1st Option looks at HMRC's conflict between maximising its tax yield, and encouraging the development of a flexible workforce in the UK.

Startling drop in tax yield from IR35 status enquiries
Data released by HMRC shows that the number of IR35 status reviews has shrunk massively in recent years, as has the amount of tax yielded as a result of such enquiries.

Lib Dem policy paper calls for IR35 to be suspended
A new Liberal Democrat IT policy paper, to be debated at the forthcoming party conference, has called for IR35 to be suspended.

Forum discusses IR35 helpline and HMRC compliance measures
The minutes of the second IR35 Forum meeting have been published, and covered areas such as the IR35 helpline, and how HMRC's compliance units intend to operate in the future.

Supreme Court confirms Autoclenz ruling over sham employment contracts
The UK Supreme Court has upheld an earlier ruling by the Court of Appeal that contract wording cannot determine the employment status of workers, if it doesn't reflect the reality of the working arrangements.

HMRC targeting under further scrutiny following Primary Path Ltd IR35 victory
A tax tribunal has found another contractor to be in business on his own account following an eight year IR35 challenge by HMRC.

HMRC suffers another IR35 defeat - engineering contractor not an employee
In an IR35 defeat for HMRC, a tax tribunal failed to find any evidence that a contract of employment existed between an engineering contractor and his client.

Why was IR35 introduced in the first place?
We look at why the Intermediaries Legislation was created, who it is aimed at, and the problems that complying with IR35 has caused contractors since 2000.