Might HMRC look into old contracts that sat outside IR35? 

Q. I work with a large private sector company. My contract is renewed every three months by my client, who I’ve been engaged by for the past six years. Every year I have my working practices reviewed, while I also make sure every new contract is professionally reviewed too. If I’m deemed inside IR35 this April and I continue to provide the same service afterwards, will this put my last six years of operating outside IR35 at risk of an IR35 investigation?

A. The taxman has said that IR35 reform will not be retrospective. By this, we mean that HMRC claims it will not chase money from any existing contracts that shift from an outside to an inside IR35 status upon or after 6th April 2020. So in theory, if your client decides your contract is caught by IR35, you won’t be expected to backdate any tax payments for the time you have spent operating outside the rules for that particular contract before reform landed.

HMRC reiterated this in its ‘Contractor Factsheet’ to some degree, stating that it “will not use information resulting from these changes to open a new enquiry into earlier years unless there is reason to suspect fraud or criminal behaviour.”

However, it should be noted that HMRC has previously stated that blanket reviews are non-compliant. But this didn’t stop the tax office from opening up simultaneous enquiries into some 1,500 contractors engaged by GSK. Therefore, HMRC’s statement that they will not carry out targeted campaigns against contractors who switch to inside IR35 should be taken with a large pinch of salt.

Additionally, because your contract is renewed every three months, there’s nothing stopping HMRC from opening an IR35 enquiry into any number of your previous contracts. Given the taxman can investigate contracts as old as six years, in theory, any of the completed contracts you have held with your current client could be scrutinised. 

While this would be very unusual, it’s still a possibility. This is why IR35 insurance still remains an important service for contractors, offering vital protection from contracts that took place before the liability transfers to the end-client or recruitment agency in April. 

It does sound like you have carried out your due diligence though, by having your working practices reviewed every year and every new contract reviewed from an IR35 perspective. This puts you in good stead should HMRC decide to launch an investigation. Additionally, assuming your client was to immediately transfer you inside IR35 this April, you will be well placed to put forward a strong argument for remaining outside the rules, if you have had your status reviewed by an independent expert, like Qdos.

This answer was provided by IR35 specialist, Qdos Contractor.