The tax crack down on contractors is continuing as HM Revenue & Customs seeks to raise nearly £30 million from employment status investigations.
HMRC still feels contractors are holding out on paying the right amount of tax by claiming they are self-employed rather than directly working for another company.
The difference is the tax breaks they can set off against earnings rather than paying the full amount of tax and national insurance like a direct employee.
Accountants UHY Hacker Young say new data published by HMRC reveals the tax authority feels £29.7 million is the minimum amount of extra tax contractors could be expected to pay for wrongly declaring their employment status.
Investigations backdated 20 years
Mike Crellin, director at UHY Hacker Young in London, said: “HMRC’s crusade against contractors is far from over.”
“HMRC is looking at employment status extremely closely. These estimates show that HMRC thinks there is more revenue that could be squeezed out of the compliance work in this area. Contactors can expect HMRC to continue to take a very tough line.”
“Just this year HMRC introduced the controversial loan charge to claw back up to 20 years of backdated tax from business, including contractors who reduced their tax liabilities through tax planning schemes.”
“IR35, the legislation targeting people who wrongly register as self-employed to reduce their tax and NIC, is going to be extended to the private sector next year which will likely create more confusion about the employment status of contractors. This is likely to see more mistakes being made – and more fines.”
Expats in the firing line
The tax target are contractors working through a public service company alongside a client’s employees.
HMRC believes if a contractor works the same shifts in the same offices and carries out the same duties as an employee, then their job status should be listed as an employee as well.
Thousands of contractors based in the UK take on contracting assignments overseas, taking on the work through their own British companies.
Many contractor companies also try to avoid higher rate tax by claiming a spouse is a shareholder and carries out paid administration work.
Sectors in the firing line include oil and gas, IT and engineering.