HM Revenue and Customs (HMRC) has clamped down on freelancers in the last year, increasing intake from investigations into suspected IR35 abuse from £219,000 to £1.25m for 2011-12.
Introduced in 2000, IR35 aims to prevent permanent employees from paying lower tax rates and national insurance by posing as a personal service company and charging under a contract.
Research from Bloomsbury Professional reveals that investigations into disguised employment from contractors have more than doubled in the past year.
The news follows chief secretary to the treasury, Danny Alexander’s speech to the Liberal Democrat conference, in which he promised to crackdown on personal service companies.
Martin Casimir, managing director of Bloomsbury Professional fears the hard line approach to IR35 could lead to genuine contractors being called into question: “There are individuals that will try to use personal service companies to avoid tax, but for those with more than one employer or those working on an interim basis, personal service companies are a legitimate way of working.”
“IR35 imposes a substantial cost on contractors as they try and comply with the legislation. It can be hard to ensure compliance without proper advice.
“One little compliance slip can lead to a genuine contractor coming under investigation for tax avoidance.”