An IR35 investigation is the last thing any contractor wants to think about. Fortunately, they aren’t a regular occurrence but with HMRC busy ensuring the rules are being followed since the public sector changes are due to come into force for the private sector (from April 2020), we anticipate that investigations will become more common.
This should go without saying but the first piece of advice we would offer is – always operate compliantly. Taking IR35 seriously and ensuring you consider your IR35 status with each contract is always the best approach.
Taking independent advice from an expert on each contract is a good idea and will demonstrate that you have considered your position carefully.
HMRC offers its own CEST (Check employment status for tax) tool, this tool has come under widespread criticism and whilst it may be a starting point if you are in any doubt then speaking to an IR35 expert is definitely advisable.
Keep evidence and all relevant paperwork, if you have everything in order and can justify your position then there should be nothing to worry about.
If you are unlucky enough to be investigated HMRC will ask you to provide certain things. If you keep up to date records and can provide what they need quickly then the process will be less stressful.
In the event of an investigation you may be asked to provide some or all of the following:
- A copy of all contracts
- Company accounts
- Details of expenses, especially travel and subsistence
- Details of the end clients worked for and contact details for end client/s
- Details of any recruitment agencies used
- A description of the services provided
- Your view on if IR35 applies and the reasons/process behind your decision making
- Any supporting evidence you wish to put forward
When will HMRC investigate
HMRC can open investigations into anyone but random investigations are unlikely. HMRC has committed to carrying out 250 IR35 enquiries a year. They have limited resources so will be keen to investigate cases where they have reason to believe they have a strong case. Generally, they will be looking for anomalies and focusing on areas and sectors where they believe this is a reason to investigate further. Other tax investigations such as into corporation tax, VAT or payroll can in turn lead to investigations into IR35.
Dramatic increases or decreases in profits or expenses could also be cause for HMRC to dig deeper. Provide explanations and further details for anything which might attract attention and lead inspectors to investigate further. Ensure all your business records and paperwork are kept up to date and tax returns filed accurately and on time.
We have extensive experience of dealing with IR35, if you are concerned about IR35 and your employment status then speak to one of our team.