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HMRC’s diminished capacity wreaks havoc with IR35

Diminished capacity at Her Majesty’s Revenue & Customs has been wreaking havoc lately with the tax authority’s ability to enforce IR35 and other matters.

Apparently HMRC can only deal with around 350 cases of disguised employment, according to the minutes of a February 11th IR35 Forum meeting. Not only that, but according to discussions in that very same meeting, it became apparent that the number of enquiries the taxman took up in the 2012/13 tax year increase thanks to new approaches to IR35 compliance – and that the compliance yield in a particular year simply won’t match up with the number of enquiries opened.

It’s obviously questionable whether HRMC can indeed enforce any IR35 legislation effectively, especially if there’s a 250 case limit that doesn’t look it will be able to be exceeded any time soon. Still, there seem to be no plans to do away with the rules at the moment despite the sluggish pace of the tax authority according to the IR35 Forum minutes.

A revelation like this drives me absolutely mad. Why in the world is disguised employment being pursued with such gusto – or at least given so much lip service when it comes to efforts to stamp it out – when the main entity tasked with rooting out IR35 issues practically crippled in this instance? It seems like a waste of time, energy and resources – especially since those resources just happen to be taxpayer funds in the first place.

And what exactly is causing this capacity problem? Is it a lack of trained staff? If so why won’t the taxman expand its IR35 staff members and step up its investigations if it’s so concerned about tax revenues slipping through its fingers thanks to disguised employment? Is it a funding issue in that HMRC can’t afford to bring more staff aboard? In that case IR35 doesn’t seem to be so important to warrant a larger budget for the tax authority. If that’s the case it seems like politicians are more interested in seeming like they care about such an issue without actually doing anything proactive about it.

Honestly if you ask me we should just get rid of IR35 altogether and let HMRC go after larger firms. There are bigger fish to fry out there, don’t you agree?

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