IR35 is the UK tax legislation preventing self-employed individuals avoiding tax by setting up a personal service company to conceal employment. HMRC do not offer a precise definition of employment meaning a grey area exists in determining an individual's employment status.

In early 2010 HMRC (Her Majesty's Revenue & Customs) served notice for a winding up petition against a small trading company. The company had ignored HMRC for three years and had not submitted accounts for three years, not since 2007. A director attended the winding up hearing in court unrepresented. He said he was trying to reach agreement with the Revenue and was granted 3 weeks stay of execution.

Owing Her Majesty's Revenue & Customs (HMRC) more than £150,000 for overdue VAT and PAYE when your turnover is less than £3 million is not uncommon in 2010.

A more extreme example of HMRC arrears was a labour service company that owed in excess of £100,000 having set on more staff but left PAYE unpaid while it grew to a turnover of £1 million. The HMRC reliance on P35 annual returns for reconciling receipts with PAYE deductions has made it easier for companies to accumulate PAYE arrears that eventually catch up with them.

HM Revenue and Customs (HMRC) is considering proposals that would see the tax authority given the power to calculate and deduct PAYE taxes centrally.

The proposal, which formed part of the recently completed consultation on reforms to the PAYE system, would require employers to supply HMRC with 'real time' information about employees' incomes and tax and NIC deductions at the time of payment rather than once a year as is the present case.

Smaller firms are being advised to file their P45 and P46 starter and leaver forms online.

The Institute of Chartered Accountants in England and Wales (ICAEW) said that doing so would help small firms prepare for the time that online filing for in-year PAYE forms becomes compulsory.

At the moment, firms with 50 or more employees must file their PAYE forms electronically or face a penalty charge.

But as from 6 April 2011, online filing becomes mandatory for employers with fewer than 50 workers.