Getting off on the wrong foot can put you on the back foot in an IR35 enquiry
In any IR35 enquiry, using the correct terminology and presenting the facts in the most favourable light, whilst still remaining true and faithful to the facts, is important in managing and keeping on top of the investigation.
I was recently called upon to intervene in an IR35 enquiry that had started in the summer of 2012. Correspondence ebbed and flowed between the contractor’s accountant and HMRC until a meeting between the parties was held in early 2013. The Revenue officers asked the normal routine questions about the freelancers’ working practices.
Whilst there was no trick questions, our contractor gave some answers about personal service that he regretted and, in hind sight, wished he had not said. When asked whether the freelancer could send a substitute he told HMRC that this was not an option and that he was under no obligation to send a replacement worker if he could not attend to the work himself. * Tip – always rehearse your answers with your adviser before any meeting with HMRC so that any problem areas can be identified and discussed beforehand. Also, if you are unsure about an answer to a question then defer it to a later point – it is your right.
Later on that year, a further meeting was held by HMRC but this time with the end client representative. They too confirmed that the contractor’s personal service was a requirement. This however was a misconception. The freelancer had provided their services to the end client for a number of years and the right of substitution had never been invoked, so it was naturally assumed by the end client that the contractor would turn up and deliver. * Tip – if possible, get the end client on board from the outset so that they can be educated in the ways of employment status and not say something that will hinder your case.
There then ensued an exchange of correspondence between accountant and HMRC. The accountant, who was most competent and well informed, presented compelling arguments backed up by sound case law, yet at every turn a stubborn Status Inspector rejected these with counter arguments of his own. Even evidence obtained from the end client representative by the accountant was dismissed but only because the questions that were asked needed to come from a slightly different angle. * Tip – even if your accountant is of sound reputation they are very often general practitioners and getting assistance from an IR35 expert will help facts and evidence to be seen in a different light.
Eventually, the accountant, who had done a sterling job, recommended that his client seek specialist help. The contractor himself had become more well versed in matters of status but he had the advantage of having the support of an extremely helpful and willing end client. After holding a discussion with the end client and an exchange of e-mails focusing on the main issues of personal service and control I was able to present a different picture of the facts that pointed to the contract falling outside of IR35. After just one lengthy letter, HMRC altered their view and recently agreed that IR35 did not apply. * Tip – don’t let cost stop you from getting expert help as it will save you money in the long run. Even better, take out Fee Protection insurance.
So when all seems lost and there is nowhere to turn, never give up as help is always at hand. It’s just knowing where to find it.
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