There’s been a lot of political shenanigans about how HMRC, particularly through IR35 investigators, have been investigating third party contractors in the public sector.
Their recently released figures for 2012, however, suggest that the department as a whole has been active in more areas than simply the public services industry.
In 2011, Pinsent Masons suggest, HMRC took on board some 157 new tax fraud cases. The number of new cases a year later has risen to 240, a rise of more than half.
HMRC investigators actively prosecuting new tax fraud cases
Don’t be fooled by the number of cases there just to satisfy the public; HMRC made almost two thirds of the cases stick, with 154 convictions in 2012, a rise of 4%. Actual arrests based on information gathered also rose by 7%.
With the strengthening of capabilities within GAAR last month, it will be no surprise to see that figure rise again this year.
As freedom of tax information begins to flow more freely across Europe, tax fraud will be both more difficult to pull off and easier to fall victim to, unwittingly or otherwise.
Jason Collins who heads up the Tax department at Pinsent Masons has two major concerns for contractors both in real-time and the knock-on effect of being caught, should the worse happen.
Double-barreled blow for contractors fear
In the first instance, the £900M of extra funding has allowed HMRC to become more aggressive.
Whereas previously civil hearings may have taken place to discuss an individual’s self-employed tax status, more recently there has been a tendency towards criminal prosecution by the tax department.
That in itself is the root cause of Jason’s second chagrin. Whilst there’s more funding for tax investigators to delve into more individuals’ circumstances, the CPS has no similar cash injection to usher the extra cases through court.
Contractors or interim managers who do fall foul of new legislation may not only be facing criminal prosecution, but could also be left in limbo whilst they await their fate.
The real fear is that their case will only add to a bottleneck as the number brought before the CPS increases, yet its capacity to deal with them remains in a status quo. A less than Parfitt scenario, I’m sure you’ll agree.
Umbrella companies offer convenience of PAYE with bonuses
Getting your taxes under control is important and can be one less worry for the innocent contractor who may be brilliant at what they do, but have no head (or desire) to get involved in the nitty gritty of self-assessment.
Recent figures suggest that 14% of the UK’s independent contractors would rather pay a fee to an umbrella company than risk falling foul of IR35.
With PAYE dealt with via an umbrella company, often with the benefit of small tax deductions for self-employed expenses, one would suggest that figure will only grow with the expectancy in the marketplace of both growth in the niche and HMRC’s ability to keep an eye on it.
