HMRC has been criticised for not understanding its own legislation surrounding the tax treatment of freelancers and contractors.
The criticism follows the defeat of the taxman by Loose Women presenter Kaye Adams who was wrongly pursued for thousands in alleged missing tax under IR35 rules.
IR35 legislation is an anti-tax-avoidance rule that applies to all contractors and freelancers that don’t fall under HMRC’s definition of being ‘self employed’.
It is designed to crack down on workers supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used.
It was first introduced in 2000 by then chancellor Gordon Brown to crack down on self-employed contractors who were paying themselves via dividends from their own limited companies.
Another form of disguised remuneration HMRC is currently cracking down on is that via loan charge schemes, whereby members were paid via loans rather than salary, and so did not pay tax.
During a parliamentary debate on April 4, Labour MP for Rutherglen and Hamilton West, Ged Killen, said: "We all want to tackle non-compliance and tax avoidance and close any loophole that allows an employee to leave their employment on a Friday and return to the same role in the same office on the Monday as a contractor or consultant through a PSC, paying less tax.
"The question, however, is how it is being tackled and what impact it will have on legitimate small businesses and the clients who engage them."
He also said that the UK’s growing self-employment market and gig economy is causing "structural problems" for the legislation and that there was an "overwhelming case" to tackle the lack of clarity around people's employment status.
An HMRC spokesperson said: "We are disappointed that the First Tier Tribunal has decided that the intermediary rules (also known as IR35) did not apply in this case.
"We will carefully consider the outcome of the tribunal before deciding whether to appeal."
But Seb Maley, CEO of IR35 advisory firm Qdos, said: "Here we have yet another IR35 case in which HMRC has wrongly pursued a genuine contractor for what it believes is thousands in missing tax. Worryingly, this is becoming common practice.
"How many more genuinely self-employed freelancers and contractors must needlessly endure an IR35 case before an independent review into HMRC is launched? You certainly start to wonder when and if HMRC will be held accountable."
Also part of the Parliamentary debate earlier this month, Labour MP for Brentford and Isleworth, Ruth Cadbury, claimed: "HMRC does not understand the IR35 rules."
She added: "Apparently, it recently lost a tax case against Lorraine Kelly. If HMRC has lost approximately 50 per cent of IR35 tax cases that it has brought against contractors, how can it implement an online tool to get a correct IR35 result?