IR35 scare

HMRC has written to personal service company contractors warning them that they may face investigation under the IR35 tax rule.

This comes on the back of HMRC having issued new guidance on IR35 in May this year, allowing contractors to voluntarily calculate their risk by completing an online business entity test.

A number of contracting bodies have seen the letters, which ask contractors if they have considered the possibility that their company falls under the legislation.

HMRC is asking those who have deemed themselves not subject to the legislation to provide evidence and to explain how this conclusion was reached.

The letters have so far been thought only to have been sent to those contractors that HMRC has deemed as ‘high risk’.

Limited company contractors have been in the spotlight of late. The results of the recent review of the tax arrangements of public sector appointees revealed that over 2,400 key public sector appointees have been engaged off payroll, in some cases for more than ten years. This was followed by the launch of a consultation on the taxation of controlling persons which aims to ensure that workers who are in controlling positions in a company are meeting their tax obligations.

The consultation proposes that a provision is introduced to ensure that controlling persons have income tax and national insurance deducted at source by the engaging organisation.

The IR35 guide is available from HMRC.