Help! I’ve Got an IR35 Letter!

With all the discussion around IR35, nobody ever expects to actually receive an IR35 enquiry letter from HMRC. Often companies are selected at random by the Revenue and thus anyone can receive one.

Long gone are the days when HMRC would start with a lengthy Employer Compliance Review and lead on from this into their real intentions; an IR35 case which could last years. Letters will now request a breakdown of your accounts for a specified accounting period and copies of all the contracts which relate to that income. In an effort for clarity, the Revenue will ask if you have considered the possibility of IR35 applying to your company and if you have decided that it does not, how you have arrived at this conclusion, now giving you the opportunity to present your case early on. You can find an example letter here.

Upon receipt of this letter, you should first make contact with your accountant and insurance provider if you have one. Qdos Contractor’s tax defence and IR35 policies all cover from this initial letter so you can get expert defence in place from the start. Without a policy, you may be able to seek advice from your accountant or invest in professional consultation or representation which is also available within our scope of services. With enough knowledge and preparation for the possibility of an IR35 enquiry however, it should be fairly straight forward for you to put together a response to HMRC. You will usually be given a month to respond to HMRC so you will have plenty of time to seek the relevant advice and assistance to mount your defence.

After this initial interaction, HMRC will either confirm that they are satisfied with your response or that more information is required. They may state that they need to arrange a meeting with you. Despite HMRC’s powers, you are under no obligation to attend a meeting with HMRC. Qdos recommends politely refusing these meetings and deal with the enquiry by letter only. This allows you to take the time to compose your responses to HMRC as they will not present you with a list of questions prior to a meeting. This puts you in a very vulnerable position.

The best way in which you can ensure a smooth and stress free IR35 enquiry should it ever happen to you, is to be properly prepared:

• Get to grips with the basics of the legislation. There is a wealth of free guidance available to you.
• Have your written contract and working practices reviewed by an IR35 specialist such as Qdos, or your accountant should they be well versed on the matter. It is important to have both aspects reviewed, as if your contract does not reflect true in reality, then it is not worth the paper it is written on. Remember to get written confirmation for any reviews and file these with the corresponding contract.
• Seek written confirmation from your end client of your working relationship where possible. You can find a confirmation of arrangements form here.
• Take out cover for the event of an investigation so you have professional representation should you need it.

The IR35 legislation can bring stress to a lot of contractors but by taking proper care in ensuring you do not blur the line between business and employee relationships and have taken reasonable steps to ascertain your status, you need not worry so much. If you do find that the legislation applies to you during any particular contract, simply ensure you are paying the correct tax and NICs by speaking with your accountant.