Should contractors be wary of holding meetings with HMRC?
Whilst HMRC may have taken a new approach to IR35 some aspects of IR35 enquiries have not changed, one being the request to hold meetings with the freelancer at an early stage of the investigation. The justification for such a request is that meetings are cost effective as they help reduce the length of an enquiry and help bring it to a swifter conclusion.
Certainly meetings can lessen the time span of an enquiry as they afford a HMRC officer to pose supplementary questions that may arise out of a contractor's answers thereby eliminating the need for protracted correspondence. Given that tax enquiries can be a stressful experience shouldn't every contractor agree to meet with the Revenue then? Not necessarily, as some individuals just do not feel comfortable with a face-to-face grilling by a government official.
It must be remembered that HMRC cannot insist that a taxpayer attends a meeting with them, so those that prefer to conduct an enquiry purely by correspondence are perfectly within their rights to politely decline an invitation to meet with the Revenue.
Opinion is divided, not only amongst the contracting community but also the tax profession, as to whether meetings should be attended. Some flatly refuse regardless whilst, at the other end of the spectrum, there are those that maintain that you should never pass up the opportunity especially as HMRC view attendance as an indication of co-operation. Then there are those caught in the middle who form their decision on the basis of what a meeting will actually achieve and if it will really progress the investigation sufficiently.
Choosing the venue
In the same way that HMRC cannot insist on a meeting neither can they dictate where it should be held, should the freelancer be agreeable to such. A contractor is therefore free to suggest a suitable location that provides a more relaxed environment than HMRC's office. The venue of choice for the Revenue is the taxpayer's business premises, usually the contractor's home but other suitable alternatives are the offices of the freelancer's tax adviser or a neutral venue, such as a hired meeting room.
Whilst HMRC have a statutory right to access business premises to inspect records that right does not extend to a private residence and can only do so therefore by invitation. Even if a contractor does invite a HMRC officer into their home the meeting can be confined to their office space if this is big enough to accommodate all the participants.
Pre-meeting preparations
Having agreed a time, date and venue for a meeting contractors can prepare themselves for what's in store.
Within good time before the meeting request an agenda from HMRC. Whilst the Revenue will not divulge the specific questions that will be asked on the day they will provide the topics for discussion.
It is always advisable for a contractor to engage the services of an IR35 investigation specialist who can take control of the enquiry process at an early stage. At some time close to the meeting they can spend time with the contractor, preparing them for the type of questions the HMRC officer is likely to ask and identify any problem areas. It is likely that the officer will be well prepared and therefore so should the freelancer.
Day of the meeting
Where the services of an adviser have been employed they should always participate in the meeting not only to assist, guide and advise the contractor but to also ensure that their client's rights are adhered to. Let them hold your hand as that is what you are paying them for.
This is HMRC's opportunity to quiz a contractor about their business and the day-to-day working arrangements of the contract(s) under enquiry, so it is the freelancer who will be doing the majority of the talking. Should a contractor be unsure of or not know the answer to a question then they are perfectly within their rights to defer the answer to a later point.
If a Revenue officer's questions appear to be obscure then be bold enough to challenge them to clarify whether the information being asked for is “reasonably required” for the purposes of the enquiry.
Stick to answering the question and do not allow yourself to go off at a tangent and provide the Revenue with unsolicited information as this could reveal facts that they had not thought of discussing and open up a whole new can of worms. Only where additional information is relevant and assist a contractor's case should this be divulged on a voluntary basis.
HMRC officers will always hunt in pairs with one asking all the questions whilst their colleague takes notes. Likewise the contractor's adviser should also take notes that can be referred to, if necessary, at a later date.
Be mindful of body language and attitude as the wrong signals may unduly influence the Revenue officers. Whilst this may be a nervy experience for some, nevertheless emotions should be kept in check as far as is possible. Should the situation become too stressful then propose a break in the proceedings or adjourn to another day, as this is perfectly acceptable to do so.
Post meeting
Several weeks after the meeting HMRC will provide copies of the 'notes of meeting'. This is the contractor's opportunity to correct any errors in what was said or to suggest amendments if anything has been omitted.
Whilst HMRC will invite the contractor and his adviser to sign the notes of meeting this is not compulsory and it is sufficient to acknowledge the document once satisfied that they represent a true account of what was discussed.
Most of HMRC meetings conducted in the early stage of an IR35 enquiry are to enable the department to gather facts and information but they can go a long way to bringing closure. This is especially true where a contractor is well prepared, articulates and presents strong evidence and information and conducts themselves with confidence. The officials who attend these meetings are usually compliance officers which gives opportunity to the forearmed freelancer and their adviser to manage the meeting rather than the other way around. Do not, therefore, fear the lion's den but venture in with confidence ready to tame the savage beast!
I wonder what the situation is as to recording such a meeting. I would assume overtly would be okay, but it might get their backs up.
It is not HMRC policy to ask if a meeting is being recorded. However, if they have good reason to believe the meeting is being recorded but were not advised of such from the outset then they may seek confirmation of such.
If the taxpayer or their agent wish to make an audio recording of the meeting HMRC should normally allow this as legally they cannot prevent such a recording. In such instances HMRC will ask to make a copy of the audio recording at the end of the meeting if local facilities exist; OR request a full typed transcript of the recording or an unedited copy of the audio recording from the taxpayer or their agent.
I had the misfortune to attend one of these a few years ago. I also found that the two interrogators will at one point excuse themselves on the pretext of making a drink. My accountant and I had a short discussion about something, when the two came back the first thing they talked about is the very thing I had discussed with my accountant – yes, the room was bugged. On subsequent meetings we ‘tested’ the theory and confirmed the bugging. Other meetings were not held at the HMRC office, we elected to continue at the accountants offices.