Contractors who choose to work via PAYE Umbrella Companies may be counting their blessings today as news emerges of a major hike in HMRC IR35 investigations

Those who work through limited companies or personal services companies have seen a 500% rise in the number of IR35 investigations in the last two years alone.

The figures, which were obtained under freedom of information by the publishers Bloomsbury Professional, reveal that the total number of annual investigations has skyrocketed from just 12 in 2010/11 to 59 in 2011/12, reflecting HMRC’s redoubled efforts to enforce IR35 through the creation of dedicated IR35 teams and the implementation of the business entity tests. The latter, especially, have fomented controversy as they have been weighted in such a way as to render most limited company contractors ‘at high risk’ of IR35 liability.

The five-fold increase is still nowhere near the peak hit in the tax year of 2003/4, when investigations reached 1,166. A five-fold increase in 24 months is still more than a mere contingency, however, and reflects determined efforts on the Revenue’s part to collect every last penny of taxation it can lay its fingers on. Not surprisingly, the tax clawed back into HMRC coffers through these investigations has also soared, from £219,000 in 2010/11 to £1.25 million in 2011/12.

Bloomsbury Professional’s figures make no reference to the number of contractors who are being deterred from working through personal limited companies altogether. They can hardly be blamed: the millions who opt for a good PAYE Umbrella Company may pay a little more tax, but they can live free of anxiety about an unwelcome visit from an IR35 investigator.

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