Following news that HMRC is already sending compliance letters to contractors whom it considers at high risk of being caught by IR35, directors of their own personal service companies may be feeling decidedly jittery to hear that the government is to push ahead with new General Anti-Avoidance Regulations (GAAR).

However, according to Claire Hooper, a tax expert with Ernst and Young, the vast majority of PSC contractors will have nothing to fear. In an article for ContractorUK, Ms Hooper explains that the new legislation is aimed specifically at “abusive artificial schemes” and that the “broad centre ground for tax planning” should remain unaffected.

The new consultation document on GAAR appears to specify a small target area of currently legal tax avoidance practises that are considered unacceptable by the Treasury. However, Ms Hopper cautions that the wording in the document creates some ambiguity, which could extend the scope of the legislation beyond the intended target group. Unless this is tackled by the time the draft proposals reach final legislation, uncertainty in UK tax law will be increased, not diminished, she warned.

The draft proposal contains important checks and balances, Ms Hooper concedes; however, as “very little tax will be collected” by the legislation because of its automatic deterrent effect, the temptation may arise to progressively amend it to dispense with these safeguards in order to raise more revenue. This is a development that Ms Hooper insists should be “carefully guarded against.”

The composition of the proposed Advisory Panel will, she argues, be crucial in preventing such “legislative creep.”

For many refugees from permie-land, however, working through a good PAYE umbrella service may be the safest alternative.

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