How To Address An IR35 Inquiry

Many articles provide information regarding the dangers of IR35. However, most of these blogs fail to share what a contractor must do when an IR35 is carried out.

There are four phases that comprise an IR35 inquiry. These include the introductory letter, the response to this letter, meetings with HMRC, and the conclusion.

Phase 1

All IR35 inquiries start with an opening letter sent by HMRC. This focuses on the company’s accounting period or the tax year of the limited company. Contractors must know that the HRMC can research up to 6 years of the history of a limited company. Most opening letters, however, focus on one tax year.

The content of the letter includes a request for an analysis of the income of the company in the inquiry period, analysis of the specific expenses like traveling expenses during the period in question, copies of all contracts that fall in the period of inquiry, factors that will allow the contracts of the company outside of IR35, and contact information of end client.

Phase 2

This is the most crucial phase among the steps of an IR35 inquiry. Contractors must not respond to the letter unless guided by a person who knows the ins-and-outs of IR35. This is the expertise of this company. The HRMC’s inquiry will be terminated if the contractor provides satisfactory evidence in response to the letter of HRMC.

Phase 3

HRMC will request a meeting between two compliance officers and the contractor if the response of the contractor does not suffice the HMRC. Contractors can opt not to have a meeting and can continue with the correspondence. After a meeting, HMRC can weigh the evidence that was provided. If satisfied, HMRC will terminate the inquiry. If HRMC deems that the response does not suffice their requirements, they will contact the end client to prove the veracity of the evidence. This is the period where the contractor is in a blind spot as he does not know the communication that happens between the Revenue and the end client.

This period will last as long as 5 years. The good news is that the Revenue promises to conduct IR35 cases in a shorter period of time.

Phase 4

The final phase of the inquiry is the conclusion. This is the time when HMRC decides if the contract is within or outside of IR35. If ever HMRC concludes that a contract is within IR35, then the contractor can appeal against the decision.

If a contractor is not compliant with the guidelines, then he is expected to pay a tax liability.

eclataccountancy.co.uk has assisted many contractors in their IR35 cases. You can contact us if you need expert help in your IR35 needs.