HMRC are set to risk-review 27,400 personal service companies for IR35 and increase IR35 enquiries in 2012/13.
Following the condemnation by the Public Accounts Committee (PAC) in the off-payroll arrangements of civil servants including BBC workers, HMRC is set to carry out a risk-based review of personal service companies in the public sector. 2,400 individuals have been found working via personal service companies in government departments and 25,000 cases in the BBC.
The PAC has made it clear that the deterrent effect of the IR35 anti-avoidance legislation has been placed at risk by the reduction in the number of investigations by HMRC into 'IR35'. This legislation is designed to ensure that tax and National Insurance Contributions are not avoided by engaging staff through the use of intermediaries, personal service companies.
The annual number of IR35 investigations is currently at an all time low. From over 1,000 investigations in 2003-04 HMRC managed just 23 in 2010-11. Whilst the PAC says that HMRC intends to increase this to 230 a year, the problem remains for HMRC that IR35 investigations do not fare well in terms of cost v benefits to the exchequer.
IR35 enquiries by their nature require the collection of evidence not only from the worker and his personal service company but also an examination of the contract with the end user which may have been drawn up between it and an agency unconnected to the worker. Many IR35 cases have turned on the evidence of the end client and not the worker. Whilst HMRC is not short on powers to collect information from taxpayers and third parties under Sch 36 FA 2008 it requires trained up man power to conduct a large number of these type of intensive enquiries - hence the need to risk access cases.