For outside IR35 contractors who got covid support, off-payroll 'due diligence' is now critical

As reported by ContractorUK, HMRC is all set to keep tackling fraud and mistakes by contractors and others who claimed covid-19 income support.

The advice from tax commentators is sound -- make certain you have all the necessary evidence to back up any claims made.

‘This has nothing to do with IR35,’ I hear you say, but the reality is that any kind of HMRC “compliance intervention” could result in a full blown IR35 investigation, writes Kate Cottrell of off-payroll specialist Bauer & Cottrell.

A golden opportunity for HMRC?

Everyone can make mistakes when it comes to tax, especially in relation to new schemes out of the covid support drawer. However, it is generally accepted inside HMRC that it is often the case that if a taxpayer is getting just one thing wrong, they are highly likely to be getting two or more things wrong.

You should not need me, a former inspector for the tax authority to remind you that we are all still within HMRC’s “light touch” phase for IR35 and off-payroll compliance, which might reassure some. But if you invest in some IR35 ‘due diligence’ now, you should be able to respond to any HMRC enquiry with confidence, wherever or whatever they choose to probe.

What are the chances of an IR35 investigation if probed already under furlough?

HMRC has never actually stopped undertaking IR35 investigations, as can be seen by those now reaching tribunal stage. 

Most specialists in this field have IR35 cases that are ongoing albeit with huge delays on HMRC’s part owing to the pandemic. The key point here is that HMRC now has an enormous pot to pick from -- 91,000 tip offs, aside to the already 13,000 investigations which have already started. And all the while, remember, HMRC has a duty to identify any other compliance risks while it undertakes its initial compliance work. As far as diversions and side-lines go from clamping down on unintentional or intentional covid support abuse, IR35 is a potentially a very lucrative one.

Get your IR35 ducks in a row

If you have claimed covid support, like a Bounce Back Loan or furlough, you will be in HMRC’s sightline. It is important to have evidence, preferably written evidence, that you have taken “reasonable care” to establish your IR35 position.  It is vital that a proper review of your contract and your working practices has taken place. 

This is not the time to rely on a conversation with your accountant who spotted a substitution clause in your contract and said, ‘all is fine.’ If you have used HMRC’s CEST tool, revisit it, read the very latest CEST guidance and make certain that you answered the questions correctly.

Also, always document any conversations with end-clients or agencies covering the written contract and especially the working practices. Make a note of any differences between contractors and any permanent employees doing similar work. And consider that a formal IR35 review undertaken by a respected firm can stop an HMRC IR35 investigation in its tracks.

Remember it is never too late!

Some ‘due diligence’ now to check your covid claims, your IR35 status and all things governed by HMRC, may save you time and considerable stress – the latter being the last thing anyone needs at this time.