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HMRC increases IR35 investigation efforts

Data obtained via a Freedom of Information request shows that the number of IR35 investigations has risen markedly over the past two years, as HMRC steps up its anti tax-avoidance activity.

Tax and legal publisher Bloomsbury Professional has revealed that the total number of IR35 status enquiries carried out by HMRC increased from a mere 12 in 2009-10 to 59 in the 2011-12 tax year.

The total tax take as a result of these investigations rose from £219,000 in 2010/11 to £1.25m in 2011/12.

MD of the publishing firm, Martin Casimir, said that the tax authorities have been “playing catch-up on IR35 in the past year” – and have increased their investigative efforts following the public sector personal service company scandal which hit the headlines after a sizeable number of senior civil servants were found to have been remunerated via their own companies rather than via the payroll.

In purely number terms, however, HMRC will need to massively increase their efforts if they are to reach the 1,166 investigation mark recorded during the 2003/4 tax year.

Earlier this year, HMRC re-launched its administration of IR35 with the creation of three dedicated IR35 compliance teams, and the publication of the controversial business entity test, which shows participants the relative risk they face of an IR35 investigation, based on the answers they provide.

As a result of the ‘off payroll’ remuneration scandal, public sector contractors also have to demonstrate that they fall outside the scope of IR35, following new guidance issued to all Government departments last month.

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