Contractors’ Questions: Does an outside then inside IR35 declaration put me at risk?

Contractor’s Question: Due to numerous sleepless nights about IR35 in my seven years contracting via my own PSC, I declared I was inside the rule on my last contract, despite it being virtually the same as my previous contracts, which expert reviewers told me were ‘outside’ and I declared them thus.

If I now revert to working outside IR35 on my next contract, am I virtually guaranteed to be investigated? If I do receive an enquiry, I fear the taxman will be suspicious about my previous ‘outside’ declarations and deem these contracts, on top of my latest one, to be caught by the rule. Incidentally, I do have insurance but I don't believe it will ever pay out.

Expert’s Answer: It is not clear if you have had lots of different clients over the seven years or if you have been with a particular client for a long time or if you work via an agency. If you have had numerous clients, then a robust IR35 review that looks at the working practices, as well as the contract, should give you the peace of mind you seek. 

However, if you have been with the same end-client for some time then we would always recommend seeking a confirmation from the end-client of the reality of your day-to-day working practices. Essentially, this confirmation will give you the end client’s view of things and what they are likely to say to HM Revenue & Customs if you were investigated for IR35.  

You are quite right to be concerned by your action of declaring the same engagement outside then inside IR35 and it will be difficult to argue if your actual working practices are unchanged. 

HMRC targets cases based on risk but they will not publicise their risk criteria.  Unless HMRC has approached your agency or end-client, you can take some comfort in the fact that HMRC cannot identify who your contracts are with until they seek sight of them.  I note that you have insurance and I would recommend that if this is tax losses insurance that you contact your insurance company, as you may find that your insurance is compromised because of your actions.

In summary, the only potential unknown is the client’s view of things and a written confirmation of the working practices should settle things once and for all. I would not recommend reverting to an outside IR35 position without this. You may also wish to consider seeking a second opinion on your IR35 position.

The expert was Kate Cottrell, co-founder of IR35 advisory Bauer & Cottrell.

Editor’s Note: Further Reading –

IT contractor JLJ in first ever split IR35 case

Wednesday 25th June 2014