22nd September 2010

Contractors warned over IR35 penalties

Contractors have been warned that IR35 penalties are still in place, despite the ongoing review of the tax legislation.

The coalition pledged to address issues with IR35 and part of its tax regime, with the possibility of developing an alternative.

However, contractors have been advised that there are still major penalties in place for workers who are aware their contract is inside IR35 but do not register it as such.

Freelance advice website Contractor Calculator explained that HMRC is likely to be severe with anyone effectively working as an employee who still seeks the income tax and National Insurance benefits set aside for genuine contractors.

"Although IR35 is being reviewed by the Office of Tax Simplification as part of a wider review of small business taxation, IR35 penalties will still apply," the group said.

The site advised that such rules will automatically apply to all contracts completed while the legislation was in force, regardless of whether an alternative is put in place.

Contractor Calculator chief executive Dave Chaplin recently said that the IR35 review is proving complicated due to the difficulty of clearly defining various roles within the temporary workforce.