With HMRC’s new approach to IR35 firmly in place and new cases coming thick and fast, we thought it an opportune time to look at what we’ve learnt from enquiries that have concluded so far.
Much was made of HMRC ‘improving’ their administration of the legislation, with particular focus on the speed of a typical IR35 enquiry. In the old days of IR35, cases could and often did drag on for several years. In 2012 HMRC responded to criticism of this by pledging that they would close enquiries down as quickly as possible, particularly if acceptable evidence was provided at the outset.
They seemed to stick to this promise for a year or so, but more recently it has become apparent they are not as willing to yield. “Shortly after HMRC changed their approach to IR35 they were far more accepting of evidence presented to them,” says Qdos’ Andy Vessey. “However, in cases I’ve been handling recently they have become far more persistent and resilient, which significantly lengthens the time it takes to close the case down”.
HMRC have always been very keen to engage with the contractor’s end user and this has not changed in recent cases. Vessey said: “The inspectors I have dealt with have wanted to meet with the contractor and their end client as early as possible. They are increasingly eager to delve into the minutiae of the actual relationship”.
End client involvement has always been a pivotal part of an IR35 enquiry. If your client is on your side, as it were, it will leave HMRC with very little to go on. However, if HMRC end up probing someone from the client’s legal or HR department – who have little knowledge of IR35 or what you actually do – things can become rather difficult.
After the furore in 2012 over the use of PSCs in the public sector, it came as little surprise that this is where HMRC focused most of their attention when it came to IR35 enquiries. The majority of cases in the months after HMRC’s new approach to IR35 involved those working in the civil service. This has now changed and HMRC have undeniably widened their scope.
“We are now getting cases covering the whole spectrum of contracting, both in the public and private sector. Interestingly, I’ve had several in the last few weeks which have involved contractors in the field of telecommunications”.
In the early years of IR35 HMRC seemed to almost select enquiry targets at random. These days are over, as they now use what they call their ‘risk assessment strategy’. Sadly HMRC keep their cards very close to their chest in terms of what this strategy actually involves, but they certainly have access to various data, plus self-assessment and RTI returns.
The much maligned Business Entity Test perhaps forms part of their overall strategy too. Sadly the BET has proven to be largely useless from a contractor’s perspective due to the difficulty in obtaining the ‘low risk’ score which would put an IR35 enquiry to bed.
In the opening enquiry letter from HMRC they will ask why you think that IR35 does not apply to you. If you can provide detailed and satisfactory evidence at this point it will go a long way to improving your chances and reducing the length of the investigation.
A useful weapon remains the Confirmation of Arrangements document. “One interesting development is that HMRC have started using the Qdos version of the Confirmation of Arrangements themselves during IR35 enquiries”, says Vessey. “If this document is in place before an investigation and can be presented to HMRC at the outset, it will make life very difficult for them”.
Qdos have recently released their IR35 Survival Kit, which contains numerous helpful pointers and facts about IR35. It can be downloaded for free here.