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Contractor Tax Protection
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All quiet on the IR35 front? Contractors warned against complacency
Posted Jan 14, 2010
This article was kindly provided by Qdos Consulting.
We are regularly being asked by freelancers “what has become of IR35?” due to the fact that HMRC’s activity in this area during 2009 was inert. The last important and notable IR35 event occurred in September 2008 when the High Court decided in favour of HMRC in the Dragonfly case.
In the summer of last year HMRC’s feeble IR35 tax yield during the period 6th April 2002 – 5th April 2008 was exposed and one might have been forgiven for believing that the Revenue had given up the ghost. As we reported last summer, however, there appeared to be no plans to re-think or scrap IR35 even if a Conservative government is elected this year. So what is happening with IR35?
The answer may be twofold. The most recent and important status cases within the last 15 months have involved the construction industry. For the last few years, following the implementation of new CIS rules from 2007, HMRC’s status resources have been chiefly deployed in the construction industry as they view it as a soft target to extract decent tax yields. Further evidence of this attitude was demonstrated by the publication of HMRC’s consultation document, in July 2009, entitled 'False self-employment in construction: taxation of workers'. There has therefore been less manpower to throw at IR35 cases.
New HMRC powers
From 1st April 2009, HMRC inherited new and wider ranging powers of inspection and for much of last year tax officials were getting up to speed with these and it was only in the last quarter of 2009 that Qdos started to notice the increasing use of these powers. It is fully expected that 2010 will see a greater increase in inspections at the premises of taxpayers and these are likely to include a fair number of personal service companies where IR35 has been flagged as a potential issue.
Whilst IR35 may have been hibernating for the last few years it could well be about to awaken and contractors must not be complacent. Keep watch and be vigilant.
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