HMRC only opened 193 IR35 investigations between 1 April 2012 and 9 November 2012, following the introduction of its new IR35 administration processes in May 2012. Of these 193 cases, HMRC confirms that 34 have been closed because “no IR35 liability” arose and a further “159 enquiries remain open and continue to be investigated.”
So far, HMRC admits that “no reviews have been closed where the customer accepts that they are liable to additional sums of tax under IR35.”
The information obtained by ContractorCalculator via a Freedom of Information (FOI) request suggests that, far from unleashing an onslaught of IR35 investigations upon contractors, as suggested by some industry sources, HMRC is initially taking a measured approach to its new administration regime.
“Although the number of IR35 reviews has increased substantially when compared to 2011-2012, the thousands of investigations predicted have so far failed to materialise,” notes ContractorCalculator CEO Dave Chaplin on the data.
“However,” he continues, “contractors should not be complacent. It is highly likely that HMRC’s three new dedicated IR35 compliance teams are conducting some preliminary testing and fine tuning of their processes before rolling out its new IR35 administrative processes, including the business entity tests, to a wider audience.”
And Chaplin observes that, so far, the jury is out on how effective HMRC’s new measures will be at catching disguised employees: “According to HMRC’s response, by 9 November no contractors had admitted that IR35 applied and paid additional tax.”
The fact that 34 cases have been closed within the seven-month period shows that, as promised, the taxman is keeping to its commitment to process reviews swiftly and close them down quickly when it is clear that the contractor under review is outside IR35.
Chaplin says: “We plan to keep on top of HMRC’s performance over the coming months using further FOI requests to identify what threat the new processes pose to genuine contractors.
“Any contractor concerned about their IR35 status can use ContractorCalculator’s free online IR35 test, which can provide peace of mind about IR35 status because, unlike the business entity tests, it is based on the underlying IR35 legislation.”