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HMRC’s much maligned IR35 approach pays off

No one particularly likes the tactics Her Majesty’s Revenue & Customs has used to approach IR35 enforcement, but it’s led to big results for the taxman.

Say what you want about the tax authority and its approach to disguised employment as a tax avoidance scheme, but the £1.1 million yield for the 2012-2013 tax year is making it hard to hold it up as anything but a successful – but reviled – bit of policy.

Now let’s get one thing straight: people should pay their fair share, I’m all for that. Tax avoidance and tax evasion hurts everyone, so rooting it out in any and all of its forms is an absolute requirement. At the same time all this pressure being placed on IR35 enforcement without actually doing anything to make sure that contractors – actual, legitimate contract workers and not those looking to shave off what they owe to HMRC – truly understand how the process works.

The big thing with IR35 right now is that people are using personal service companies to mask their employee status. The problem here is that there’s no hard and fast rule for defining what is a personal service company and what is not, so there’s no straightforward way for actual contractors to discover if they are truly in danger of falling under the scope of IR35.

Making matters worse is that one of the pivotal controlling factors of whether or not you’re considered at risk for IR35 is when you’re an office holder of a personal service company, yet once again the words ‘office holder’ aren’t defined clearly either. So in essence there’s several layers of job titles and company functions that may or may not expose you to IR35: in other words, it’s a bit of a crap shoot, and in matters of taxation there’s little room for something of that nature – especially if it could mean the difference of hundreds of pounds when tax season rolls around every year..

The danger here is that there are completely innocent or understandably ignorant contract worker is going to be hauled over the coals because of an oversight or simply because he or she didn’t understand the legislation as it stands right now. That’s unfair and simply unacceptable. If the legal definitions and language were clearer there wouldn’t be this problem – or this possibility – but until this matter’s cleared up I think that IR35 is going to remain a thorn in the side of the British small business economy.

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