London, Wednesday 15th October 2008 – A new survey shows that contractors and freelance professionals are disregarding basic best practice in ensuring their contracts are outside IR35, putting them at risk of being caught by HM Revenue & Customs.
“It looks like a significant number of contractors are playing Russian roulette with their tax affairs,” says Dave Chaplin, chief executive of ContractorCalculator.co.uk. “The gun is HM Revenue & Customs, the bullet is the IR35 tax legislation. And with HMRC needing to collect as much revenue as possible to fill the Treasury’s empty coffers, it looks like it’s only a matter of time before the trigger is pulled.”
Chaplin was speaking about today’s release of ContractorCalculator’s latest survey, which shows that most contractors rarely or never seek independent professional advice on their IR35 status, yet most firmly believe they would not be caught by the IR35 legislation or the taxman. The results of the survey show that:
- 93% of respondents believe their current contract is not caught by IR35, but only 24% have had their contract professionally reviewed to verify their belief
- 56% never get their contracts reviewed for IR35 status at all
- On the crucial right of substitution, which is increasingly seen as a key plank of IR35 defence, just 13% had an unfettered right of substitution, but only 5% have exercised that right
- 5% actually admit they would be unlikely to successfully defend their IR35 status if challenged, and 69% said ‘maybe’.
Chaplin expressed his concern about how many contractors do not appear to take the threat of IR35 seriously: “As many high profile IR35 rulings have made the national press, there is no reason for contractors to be ignorant of the risks they run in flouting IR35 rules. Plus, the fact that only 30% of contractors have IR35 tax investigation insurance and only 35% put away extra money in case they are caught demonstrates a worrying level of denial.”
He worries that many are simply burying their heads in the sand: “’After all, the latest IR35 case lost by a contractor, Dragonfly Consulting Ltd, saw contractor John Bessell facing a bill for back taxes of almost £100,000. “My greatest fear,” concludes Chaplin, “is that if the Treasury decides to provide the necessary resources for HMRC to have an IR35 crackdown, a great many contractors will find themselves caught by IR35 and facing huge bills.”
End of press release
Notes to editors:
1. IR35 is a piece of tax legislation, announced in 1999, which took effect from April 2000. The legislation means that HM Revenue & Customs can, in certain circumstances, tax some contractors as though they are employees of their clients. Contractors caught by IR35 pay significantly more tax, reducing their take-home pay by up to 25%.
2. ContractorCalculator.co.uk is a leading UK internet site for contractors and professional freelancers. Independently audited by ABCe, its last audit, in March 2008 showed the site was visited by 104,584 unique visitors.
To arrange an interview with CEO Dave Chaplin:
Tel: 0871 218 5152
Email: office@contractorcalculator.co.uk