Ask the expert: Will HMRC stop pursuing contractors when IR35 reform is introduced?

Will contractors still be at risk of an IR35 investigation after 6th April?

When supporting tens of thousands of contractors with their IR35 compliance, we’re asked questions daily about this controversial and complicated tax legislation. In this regular feature, Qdos’ Head of Tax Nigel Nordone will draw on his 20 years working as a tax inspector to provide crucial IR35 advice to independent professionals. 

This week, a contractor would like to understand more about how HMRC will police IR35 compliance when IR35 reform is introduced on 6th April. 

“I realise that when IR35 changes land in the private sector, contractors will no longer carry the risk, unless our client qualifies as a ‘small company’. With this in mind, when working with medium and large businesses, are we out of the woods? As in, will HMRC leave us alone?”

Nigel’s view:

You’re correct in that on 6th April, the IR35 liability will no longer rest with the contractor when they are engaged by medium or large businesses - this mirrors the changes introduced in the public sector in 2017. 

As you also rightly state, if your client is classed as ‘small’ under the Companies Act 2006, they are exempt from the off-payroll reforms. This means you will remain responsible for determining your IR35 status and continue carrying the risk.

However, while in most scenarios the contractor will no longer be liable for IR35 upon the introduction of reform, that’s not to say HMRC will stop investigating contractors with regards to their IR35 status.

After all, many IR35 enquiries are retrospective and will continue to be. By this, I mean HMRC will carry on scrutinising contractors’ IR35 status on completed contracts that took place before IR35 reform, when contractors held the liability. 

How far back HMRC will look depends, but there’s nothing stopping the tax office from opening up an IR35 enquiry into a contract that finished 6 years ago, potentially beyond that if deliberate non-compliance is suspected. 

Alongside this, there is also the risk that HMRC will investigate contracts that have transferred from outside IR35 to inside the legislation in the lead up to or when IR35 reform arrives. This is despite the government repeatedly claiming it wouldn’t be the case.  

For example, official guidance states: “HMRC will not use information resulting from these changes to open a new enquiry into earlier years unless there is reason to suspect fraud or criminal behaviour.”

In my view, the word ‘suspect’ gives HMRC the right to look into any contractor’s contract. It means the tax office can always argue that they ‘suspect’ non compliance, thereby giving themselves a reason to open an enquiry.

This means contractors can’t rule anything out. By allowing themselves the freedom to inspect contracts that shift from outside to inside IR35, along with those that took place a number of years ago, HMRC has a wide remit and the opportunity to continue policing IR35 compliance among contractors for some time. 

Contractors would be wise to bear this in mind and consider IR35 insurance, which will protect you in the event that HMRC does contact you.

Having supported over 90,000 contractors from the threat of IR35, Qdos offers a range of award-winning IR35 services, including IR35 insurance, to protect independent professionals in the event of an HMRC investigation.