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Enquiries rise following new approach to IR35
by Susie Hughes at 15:02 10/12/13 (News on IR35)
HM Revenue and Customs (HMRC) has confirmed a substantial increase in IR35 investigations following its new approach with specialist teams and centralised IR35 enquiries within these teams.
After consultation in the IR35 Forum, HMRC is piloting this changed approach and the new way they tackle enquiries by attempting to establish the facts faster and close enquiries that were low risk quickly.

Alongside this HMRC refreshed their risk profiling for potential IR35 charges and they are continuing to refine this risk profiling from the results of the IR35 enquiries.

Cases
In 2012-13 HMRC opened 256 cases where IR35 was the main risk. From the IR35 enquiries closed in the 2012-13 year (some of which were opened prior to 2012-13) the yield was £1.1 million. HMRC closed 85 of the cases opened in the year for nil.

HMRC said that customer co-operation enabled many of these cases to be closed within three months of being opened, but all were closed within 12 months, fulfilling HMRC’s commitment to close cases early where on investigation they were low risk. Some of the cases opened in 2012-13 are still open and these represent cases where HMRC consider there are still risks that need addressing.

HMRC, in partnership with the IR35 Forum is currently reviewing the new process and guidance they introduced as part of the pilot in April 2012. Agency group, APSCo is one of the members of the IR35 Forum and they were quick to welcome the reaffirmation of HMRC's review of its processes.

Samantha Hurley, Head of External Relations at agency group ASPCo said: “APSCo has welcomed the opportunity to work with HMRC through its IR35 Forum and has been greatly encouraged to see a clearer understanding by Government of those professional contractors who are genuinely self-employed through personal services companies.

"We are pleased that HMRC is constantly reviewing its guidance to ensure that any measures introduced are targeted at the right areas. It’s crucial however, that HM Treasury focuses on giving legal certainty to the millions of SMEs out there. At the moment few tax advisers can say with certainty whether SMEs fall into the provisions of IR35 or not”.

Big picture
Based on information received from a number of sources, the full picture on IR35 investigations and yield now looks like this:

Investigations opened...
2000/2001...........16
2001/2002..........261
2002/2003........1,016
2003/2004........1,166
2004/2005..........771
2005/2006..........656
2006/2007..........158
2007/2008..........104
2008/2009...........25
2009/2010...........12
2010/2011...........23
2011/2012...........59
2012/2013..........256

Tax yield from IR35 investigations in...
2000/2001.............nil
2001/2002.............nil
2002/2003..........£946,275
2003/2004........£1,973,851
2004/2005........£1,447,796
2005/2006........£2,316,351
2006/2007........£1,906,619
2007/2008........£1,730,640
2008/2009....... £1,430,358
2009/2010..........£155,502
2010/2011..........£219,180
2011/2012........£1,250,000
2012/2013........£1,100,000

NB: The tax yield recovered in each year is not in line with the number of enquiries opened in the corresponding year, as investigations might begin in one year and conclude with tax yield being accrued in another year. (See also: IR35's investigations and yield in first decade - Shout99, Oct 2011).

Shout99 has a dedicated news area for comprehensive coverage of IR35 policy, Government and HMRC initiatives and legal cases, see Shout99's News on IR35 section. You can also sign up for free email alert when new articles appear in this section.

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Susie Hughes © Shout99 2013

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