IR35 has always been an omnipresent threat for contractors. However, more recently, certain activity by the revenue has caused concern amongst professionals and contractors alike.
Last month, our partners, Qdos Contractor, were notified of two new enquiries by two uninsured contractors on the same morning.
Whilst this may not seem like a particular cause for concern, this small spike in the space of a few hours has raised a cause for concern amongst a few IR35 experts.
Kate Hardy, an expert tax consultant who has been closely dealing with the legislation for 12 years now, said, “We usually hear of two uninsured enquiries in a week, let alone in one morning. It makes me wonder if there has been a spike on a bigger scale too.”
“This activity also makes me question the sincerity of HMRC’s promises of launching 250 investigations this year. As insignificant as it sounds, these two cases could mirror a rise in other investigations being instigated which are being dealt with by other specialists.”
Qdos contractor have already dealt with numerous cases this year, which “appears to be a significant proportion to be allocated to one specialist.”
“This in itself gives me reason to believe there will be more than 250 investigations undertaken this year,” Kate said.
However, this apparent ascent has had the opposite effect on other specialists.
For Andy Vessey, a renowned IR35 expert, this upsurge has not come as a surprise.
“We should not be so surprised that there has been this sudden upsurge in IR35 activity,” he stated. “After all, the Revenue have improved and honed their resources. Instead of the old scatter gun approach, IR35 enquiries are much more carefully targeted and are determined by risk assessment criteria known only to HMRC.”
“As enquiries take longer to settle, then the costs of professional representation are increased. From start to finish, an enquiry that takes in the region of up to 20 hours to be concluded, could leave a contractor looking at a bill of £2,500 upwards.”
Qdos’ IR35 case load has tripled since 2012, so with more and more investigations starting, they have given some tips on what to do to put yourself in the best position in terms of IR35 (otherwise known as well, well outside of it).
What you can do before an investigation
Prevention is always the best form of defence. Take the necessary steps to ensure you are being compliant and be prepared for a potential investigation by:
Having your written contract independently reviewed for compliance
Reviewing your working practices, ensuring to record your checks if you are not using a professional to do it for you and that your end client agrees with you
Ensuring everything in your written contract is true in real life, even down to the smallest detail (HMRC may question the integrity of your entire contract if even one small thing is untrue)
Obtaining written confirmation of your working practices from your end client where possible
Keeping an organised file of all records related to your status compliance such as copies of contracts and contract extensions, compliance reviews for both written contract and working practices, correspondence with your end client e.g. emails with your own company logo or an employee list that was sent around which didn’t have your name on it etc., receipts for marketing investment and so on
Paying a deemed salary if you find yourself working ‘inside’ the legislation (speak with your accountant if you think this may apply).