It is being reported that HMRC have issued their first batch of IR35 letters to contractors working through their own Personal Service Companies (PSC's).

The purpose of the letters is to inform contractors of HMRC's new risk based approach to identifying people who may be subject to an IR35 investigation.

This follows HMRC's launch of the IR35 Business Entity Test and the 6 example scenario's that they published.

Although HMRC also point out that the new guidance is not comprehensive it has also been criticised by many as it still does not make it perfectly clear who is and who isn't caught by IR35.

The effect of the letters will probably be that many contractors will panic and close their limited companies with the option of then being paid through an umbrella company or PAYE through their recruitment agency. This would therefore normally result in the contractor paying more tax and the HMRC collecting more.

If you are a UK contractor worried about IR35 please call PayMatters on 0800 121 6513.