What NOT to accept from HMRC in an IR35 investigation
After HMRC recently attempted to leave an IR35 enquiry open indefinitely against a contractor who we represented, writes Nigel Nordone, head of tax at Qdos Contractor, it rightly cast an unfavourable light on the taxman’s behaviour. Yet again.
Granted, this shouldn't come as too much of a surprise. In recent years, HMRC has received widespread criticism for the way it treats taxpayers -- and not just from contractors and sector experts either.
Towards the end of last year, a House of Lords report also blasted HMRC for its aggressive nature, referring to the contractors impacted by the controversial Loan Charge in particular. The taxman’s approach to dealing with tax and in particular, IR35 compliance, has made it very clear that HMRC is on a quest to raise revenues by targeting independent workers -- the vast majority of whom are genuine contractors and do not deserve to be put through the ordeal of an IR35 enquiry.
HMRC can’t see, or it just doesn’t care
This trend, combined with HMRC’s unpredictability and apparent lack of understanding of reasonable prospect of success, has increased the threat of contractors being investigated. Worryingly, it doesn’t seem to matter to HMRC if a working engagement bears all the hallmarks of an outside IR35 arrangement. Either the taxman can’t see this or just doesn’t care.
If, as a contractor, HMRC does contact you regarding your IR35 status, it can be incredibly unnerving, daunting and confusing. And speaking from experience when handling these enquiries, carefully worded letters and correspondence from HMRC can make you feel like you must obey the taxman’s every request! This isn’t always the case. There are a number of things you simply shouldn’t accept from HMRC in an IR35 enquiry.
I’ve explained a number of them below…
1. Say ‘no’ to a meeting
It’s likely that HMRC will request a meeting, where a compliance officer (or two) will look to establish your working practices. My advice to you is to politely decline the offer. Irrespective of how strongly worded the letter sent to you by HMRC is, you are under no legal obligation to attend a meeting.
The complexity of the IR35 legislation and HMRC’s aggressive pursuit of contractors suggests you’d be wise to request that the enquiry continues by written correspondence. As you might expect, I advise this to be handled by an expert. The sheer sums of money that can be involved in an IR35 case means you do not want to slip up.
2. Do not send information outside the period of review
It’s likely that in an opening letter from HMRC, you will be asked to provide copies of emails, timesheets and other supporting documents that might well fall outside the period under review. My advice to contractors is to only send copies of contracts and a breakdown of the income for the time period HMRC is investigating.
3. Decline a phone call
HMRC might also ask to arrange a telephone call to discuss your IR35 status. Again, you are well within your rights to decline this invitation. It’s worth remembering that you do not ever have to communicate with HMRC yourself -- tax experts and representatives can do this on your behalf. If you feel uncomfortable about the prospect of dealing with HMRC officials personally, then it’s certainly something you should consider.
4. Do not accept direct contact
Assuming that you choose to be represented by an IR35 expert, you shouldn’t allow HMRC to bypass your agent or adviser and contact you directly. This is a tactic occasionally employed by the taxman, who has been known to try and catch contractors off-guard. Any correspondence received directly should be passed immediately to your adviser, who will take care of responding to it.
5. Do not give up
Above all else, do not accept an initial ‘caught’ decision relating to IR35. Everyone has the right to appeal, and as we’ve seen in recent IR35 cases, appellants can successfully overturn HMRC’s verdict. According to reports, the taxman has won just one IR35 tribunal outright this decade. However, this hasn’t stopped HMRC from needlessly opening up enquiries into contractors whose engagement clearly resembles a contract for service and not a contract of service. Should you seek support from an IR35 specialist, they will be strongly placed to advise on whether you should appeal or not.
As was the case in the recent IR35 enquiry we successfully shut down, contractors would be wise to bear in mind that they do not always necessarily have to accept the taxman’s every request.