The number of tax fraud cases investigated by HMRC quadrupled last year.

New research by Bloomsbury Professional revealed that 256 investigations were launched in 2012/2013, compared to just 59 the previous year. Tax avoidance was found in two thirds of those cases.

The investigations were conducted under the IR35 legislation which was introduced 2000 to tax those falsely registering as self-employed at a rate similar to regular employment.

Bloomsbury say that HMRC’s steep increase in IR35 investigations is likely to deter many professionals from freelancing, due to fear of being fined.

Martin Casmir, managing director at Bloomsbury Professional said:

“HMRC’s attitude towards IR35 hardened following a small number of high profile tax evasion cases in 2012 involving senior executives in the public sector and BBC.

“However, this legislation affects everyone working on a contract basis, and it’s very complicated, meaning some honest freelancers are falling foul of the rules.”

Many freelancers are operating illegally without knowing it due to the complex IR35 rules. The most common mistakes are badly drawn contracts, office parties, gym access and other perks offered by employers.

Mr Casmir continued:

“Minor oversights when agreeing contracts could result in a big financial blow for freelancers hit with an investigation by HMRC. Time consuming and extremely costly, the burden of an investigation can really affect a freelancer’s livelihood.”

Photo by 401(K) 2012