Contractors’ Questions: How far back can HMRC apply IR35?
Contractor’s Question: How far back can HM Revenue & Customs look in terms of assessing me under IR35? My current contract has just been approved by an IR35 expert. But this has got me thinking; how far back do I need to insure myself for my earlier contracts?
Is there a cap on how far HMRC can look back into my past or paperwork? Or is it the case that any assignment/contract I’ve had since the IR35 legislation came into force in 2000 could be scrutinised under IR35?
Expert’s Answer: Broadly, HMRC can go back and assess liability for four years for tax and six years for National Insurance Contributions. As IR35 is mainly a NIC issue, you should consider six years as the maximum.
In terms of IR35 insurance, it falls into two types, legal expenses and tax losses insurance. Both types cover the costs of advisors fees in defending the case and tax losses insurance also picks up your bill for tax, NIC, interest and penalties in the event that your case is lost.
Legal expenses insurance is not dependent on any sort of IR35 contract review but tax losses is and, generally, will only cover a contract that has been assessed as outside IR35.
Some tax losses policies are arranged on a claims-made basis so that all contracts recorded on the policy are covered on an annual basis. This is general guidance only and as with any insurance you should consult the scheme provider and read the policy wording (particularly the small print) carefully.
In your situation, you may want to go back to your contract reviewer to look at your past contracts for peace of mind. Many IR35 advisors offer reduced rates to look at bundles of past contracts.
The expert was Kate Cottrell, founder of IR35 advisory Bauer & Cottrell, currently seconded to the Office of Tax Simplification.