Contractors could be facing a huge increase in the number of IR35 reviews handled by HMRC’s IR35 compliance unit, growing from the 230 forecast for the end of the 2012/13 tax year to over a 1,000 in 2013/14.
This is according to IR35 expert Andy Vessey of Qdos Consulting, who believes that the 36-strong IR35 compliance team created in May 2012 has the capacity to manage well in excess of 1,000 IR35 reviews a year.
“The new dedicated IR35 compliance teams were only created last year and it takes time for investigation teams to bed in and gather data,” explains Vessey, himself a former member of HMRC.
Based on Vessey previous experience of HMRC operations and his knowledge of how the IR35 compliance unit is structured across three offices with 12 person teams, he estimates that each inspector should be able to comfortably manage a caseload of 20-30 IR35 reviews each year. Although he adds that the teams will include researchers, risk and data specialists, and are not simply comprised of inspectors.
But it’s not just HMRC’s capacity that Vessey believes will drive caseloads higher. He explains: “In the latest IR35 Forum minutes, HMRC predicts that it will have opened up to 230 IR35 reviews in the 2012/13 tax year. HMRC has further committed to the Public Accounts Committee (PAC) that these will at least double.
“Depending on the success of the new measures introduced in May 2012, which HMRC is reviewing at present, once the IR35 compliance unit becomes a well oiled machine I do not see why HMRC cannot once again reach the peak reached in 2003/04 of over 1,000 IR35 cases each year.”
Vessey notes that HMRC already has a target-rich environment in the form of the Treasury’s report into the use of off-payroll hiring used in the public sector which identifies nearly 3,000 contractors and interims, many of whom remain in post.
“Even without the Treasury’s data on public sector contractors and interims, contractors are at an increasing risk of finding themselves of HMRC’s radar and becoming the subject of an IR35 review,” he adds.
“That’s why now more than ever contractors should apply IR35 best practice, ensure they gather evidence which places them outside of the legislation and take out a tax investigation insurance policy in case the worst does happen.”