Are you at less risk of an IR35 enquiry when engaged by a small company?

After IR35 reform, will HMRC’s focus be on small, medium or large firms?

Q. I’m a PR consultant and work outside IR35 with a number of clients, the majority of which meet HMRC’s criteria for a ‘small’ company. In fact, I only work with one business that qualifies as a medium or large company. Even so, I’m interested in whether, from 6th April, HMRC will become more interested in opening an IR35 enquiry into a contractor engaged by medium or large businesses and therefore less likely to scrutinise those working with ‘small’ enterprises. What are your thoughts?

A. In typical fashion, HMRC is keeping its cards close to its chest. And it’s very unlikely that the tax office will give away its plans for tackling what it perceives to be non-compliance. HMRC’s thinking is that letting on how it intends to police compliance will lead to further non-compliance – assuming this even exists to the extent where reform is necessary that is.  

Granted, the new Chancellor did say last week that HMRC officials will not be ‘heavy handed’ when enforcing IR35 reform, which will be introduced on 6th April. But take from that what you will and with a large pinch of salt. By no means does this suggest that HMRC will go easy on medium and large businesses or turn a blind eye to suspected non-compliance in any form.

Nor does it mean that HMRC will be more focused on contractors mostly engaged by ‘small’ companies, such as yourself. The tax office is unpredictable in its approach, meaning you must work off the basis that HMRC is just as likely to open an IR35 enquiry into a contract held with a medium or large firm as it is to scrutinise ones held with small companies.

The key difference, of course, is that contractors engaged by ‘small’ businesses will not be directly impacted by the introduction of IR35 reform on 6th April. In other words, you will retain the right to determine your IR35 status and, crucially, will carry the IR35 liability. 

This is why, when deciding your own IR35 position, it’s vital you get it right. For peace of mind, contractors often have their contract professionally reviewed before taking out IR35 insurance, which can cover resulting HMRC penalties, along with costs associated with fighting your corner.

This answer was provided by IR35 specialist, Qdos Contractor.

1 Comment

  • Colin says:

    As medium and large companies are more likely to be clued up about IR35, I think HMRC are more likely to go after small companies.

    Also, it’s only a matter of time before small companies are also subject to the new rules.

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