Most contractors who receive correspondence from the HMRC, are unaware of the chain of events that are likely to follow and are ill prepared to tackle the issues. This can lead to a situation where the contractor ends up messing up the chances of getting a favourable outcome through a proper presentation of the facts. A response that is support by the right documents and presented right, can help to clarify multiple issues right at the beginning.
Here is the order of events that are likely to unfold in an IR35 investigation.
1. Letter seeking information
Typically, you would receive a letter from the HMRC asking for information about the basis on which you considered your contract to be outside of IR35. The letter could be direct and to the point, or could also be cloaked as a request for a visit. The HMRC is vested by powers to seek information. However, it is important to understand that consent to visit offices is an altogether different aspect and it is not necessary to heed to requests about visits. Information can be furnished as sought without having to submit to a visit.
2. Furnishing information with the response
You would then have to furnish your response with the relevant information. An improper response, without the support of the right kind of documents can lead you directly to the unenviable position of being considered as a contractor inside IR35. It is necessary to get a comprehensive contractor review completed, and attach a Confirmation of Arrangements with the response to buttress the response and close the issue.
3. Discussions with the end client
The HMRC will conduct an enquiry with the end client, beginning with a letter of introduction. As a contractor, you need to meet the client and explain the circumstances and get the required records ready for presentation to the HMRC by the client. Rather than an ill-informed approach, it would serve your interests better if the end-client takes proper care to present details so as to prove that the contract is outside of IR35.
What needs to be done after the IR35 enquiry?
Depending on the outcome of the IR35 enquiry, you can choose your action. If you have been deemed to be outside of the IR35, there is nothing to worry about and you can continue your operations as before. However, if your contract happen to be considered as inside IR35, you will have two options – pay up or present your case for appeal. If you have a strong case to make out, you can move the appropriate tribunal against the HMRC determination.
How to tackle issues pertaining to IR35 enquiry?
As a contractor, it is always advisable to get a qualified assessment of your contract. It is highly likely that the present terms of the contract and the processes at the end client’s place put yourself in a tricky position. By renegotiating the terms of the contract and by following practices that take your contract out of the IR35, you can avoid the penalties and exposure to tax. Using the services of an accountant to review and assist in handling the queries of the HMRC will help in keeping you away from adverse consequences of an IR35 enquiry.
Will an IR35 insurance cover help?
IR35 insurance cover will certainly offer peace of mind to contractors who are unsure of their contracts and possible subsequent determination by the HMRC. While many types of insurance cover are available, it is advisable to opt for a comprehensive cover which will take care of expenses towards expert defence in a tax tribunal, back taxes, penalties and interest. This will give you complete peace of mind and take care of everything, even if you find yourself within the IR35 as determined by HMRC. The cover comes with options at additional premiums to take care of HMRC investigations, tax and NIC liabilities.
Know your rights
Many contractors are led to believe that they have no other option other than complying with the orders of the HMRC. There are legal options available for contractors both during and after the determination process. Contractors need not actually agree for a face to face meeting with HMRC inspectors. The information can be furnished in writing, which will give you adequate time to gather your records and draft a clear reply, rather than replying in circumstances that are not considered as the most conducive. Ask for access to information relied upon by the HMRC to make the determination and point out the errors. It is important to be compliant with regulatory bodies, but it is not necessary to submit meetings which are not mandatory.