HMRC fines 4-in-10 contractors

Thursday 13 June 2013

Just under four out of ten contractors and freelancers have been on the sharp end of HMRC’s penalties, according to a new survey.

The survey from umbrella company Paraplus found that as many as 37 per cent of self-employed professionals had fallen foul of the taxman and been issued a fine for their trouble - which could mean as many as 600,000 contractors have been hit with at least one penalty.

Late submissions were the most common grounds for the issue of a penalty, perhaps because so many contractors admitted that they struggle to keep up with exactly what is expected of them by HMRC. A total of 55 per cent said that they had difficulty in understanding guidelines issued by the tax office - indeed, another 42 per cent said that their biggest concern with their way of working is getting their heads around HMRC guidance.

Even so, many contractors had even bigger concerns. Nearly two out of three contractors and freelancers said that the tax paperwork and administration involved in working under a limited company, umbrella company or as a sole trader worried them the most.

“Constant” updates from HMRC offering fresh guidance on how the rules should be applied in practice have left most contractors struggling to keep up, according to Paraplus, which described the figures as “unsurprisingly high”.

Although the survey does not break down whether the contractors were working as limited companies or umbrella contractors, the research makes it perfectly clear that self-employed professionals of all descriptions are having problems keeping up with their differing tax liabilities.

Expenses remain one of the thorniest issues for most self-employed workers. The survey revealed that despite frequent attempts from HMRC to clarify its position, as many as 54 per cent of self-employed workers said they were unsure of what they can and cannot claim.

Phil McDonald, Paraplus managing director, pointed out that “HMRC does not consider ignorance an excuse”. Being uncertain of the rules and how they affect contractors, he added, could potentially leave thousands of self-employed workers vulnerable to hefty fines.

The study’s findings on expenses should be a particularly powerful “wake-up call” to contractors, Mr McDonald said, since this is a “notoriously confusing” area of the tax regulations of which freelance workers can all too easily fall foul.

For many self-employed professionals recent changes to tax law have muddied the waters. Building on the existing complex IR35 legislation, which is already baffling to many independent workers, HMRC has recently sought to clarify its definition of an “office holder” for tax purposes. However, the latest guidance to be released by the taxman following this year’s Budget Statement has left many freelancers none the wiser on how they will be affected. It is possible that this ongoing uncertainty has contributed to the confusion which leaves so many contractors struggling.

“With as many as 1.6 million contract workers in the UK, these statistics show there is a clear need for assisting these workers in managing their tax administration and keeping HMRC compliant,” said Mr McDonald.

By Victoria McDonnell

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