COVID-19: CUSTOMER NOTICE
Please note that our team are working from home to help prevent the spread of coronavirus. We endeavour to minimise any adverse impact on our services however in the event you experience any difficulties in contacting Qdos via telephone, please email [email protected] with your telephone number and brief details of your query, and a member of the team will return your call as soon as possible. Until further notice, our contact hours are reduced to 8:30-18:00 Monday-Friday. We apologise for any inconvenience caused.​ Click here to find out more or for information on the delay to IR35 reform, click here.

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IR35 Advice Centre

 

IR35 ​Investigations Guide

IR35 Investigation Process
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Contact Qdos Contractor:0116 269 0999
 
 

IR35 Guidance

 

IR35 Investigations

Despite best efforts to maintain compliance with the IR35 legislation, HMRC may still open an investigation into your accounts.

It will usually begin with a request for information relating to a specified accounting period and require evidence as to your IR35 status. From here investigations range from a matter of weeks with no further information required - to years of back and forth and in some instances an appearance at a Tax Tribunal.​

Having successfully defended in excess of 1,600 HMRC investigations, and saved contractors over £35m in tax, we know the investigation process, HMRC terminology and tactics well, and are able to confidently defend contractors against HMRC. Our Head of Tax is a former HMRC Inspector of Taxes himself, providing Qdos with the first-hand experience needed to handle IR35 investigations. As one of the few true IR35 experts, we have been involved with the IR35 legislation since it began, following every amendment and relevant case.

Below you will find information about IR35 investigations, the process involved, real life experiences as well as how to handle an investigation should you receive such a letter.​

IR35 investigations can be time consuming and costly, as well as stressful, therefore it is worthwhile having an independent specialist to handle this on your behalf. Qdos have a dedicated team of IR35 status experts that can not only help with contract reviews and IR35 queries, but are also able to represent you in IR35 investigations.

We are able to represent you whether you are insured or not. Uninsured clients often do not know where to turn, but we are happy to assess your situation and the case for you. We are also happy to take on a case after it has already started, to reach a settlement preferable to you. We have picked up HMRC cases that are already well into the investigation process and have saved clients a lot of money in doing so.

Please contact our consultancy team on
0116 2690992 or [email protected]
for more information

Investigations from April 2021

 

After the reform, we do not expect to see many substantial changes to the IR35 enquiry process. One of the main changes to how an enquiry is initiated is that rather than the contractor being approached, HMRC will begin proceedings with the end client for that engagement.

The initial letter, which will now be directed at end clients, will ask for more information from end-clients after the reform than it ever asked from contractors before.

For example, it will ask the end client how many contractors they engage and how many of these contractors fall inside or outside of IR35. In addition to this, HMRC will ask the end client to identify those contracts that are outside of IR35. From the addition of these questions, there are concerns that we may see an increase in blanket IR35 enquiries like those that we have seen from HMRC in the public sector.

What are the consequences if you are caught by IR35?

 

It is important to first note the difference between engaging in contracts that are initially determined to be inside IR35, and engaging in contracts that are assumed to be outside and then following an enquiry by HMRC are found to be inside.

If you provide services for an engagement that is initially considered inside IR35, there will be no ‘consequences’ so to speak, other than that you will have to deduct a higher rate of tax and National Insurance due to providing services that are considered inside IR35. After the reform in April 2021, this will be deducted at source by the fee-payer in any engagements with medium or large businesses. Otherwise and until 6th April 2021, it will be the contractor's responsibility to continue making any relevant deductions.

If, on the other hand, you are found to be inside IR35 through an enquiry by HMRC, you are expected to pay any overdue tax and National Insurance as well as any interest or penalties that may have built up. Something you should keep in mind is that an enquiry from HMRC should not be taken lightly, not only is it stressful, but the proceedings can continue for an extended amount of time. When you consider the costs of defending yourself against an enquiry from HMRC, it is easy to see how quickly that number could rise.

It is, as of yet, unclear how compliance will be dealt with after the reform on 6th April 2021. Because of this, it is increasingly important that contractors have adequate IR35 insurance in place to protect their businesses. For more information on our IR35 offering for contractors, see here.

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Customer Stories

 

Find out what an IR35 enquiry is really like from the first hand experience ​of two contractors we defended.

 

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IR35 Guidance

 

IR35 Investigations Process

An IR35 enquiry can be a stressful and prolonged event. The majority of investigations will close, whether positively or negatively, before reaching tribunal. It is rare for an enquiry to go through this whole process all the way to tribunal, however below we lay out the full IR35 investigation process for your information.

  • 1. Letter

  • 2. Response

  • 3. Client Involvement

  • 4. The Outcome

  • 5. Appeals and Dispute Resolution

  • 6. Tax Tribunals and Higher Court Options

  • 7. Final Decision

What triggers an IR35 investigation?

 

HMRC keep their cards very close to their chest when it comes to exactly what could trigger an IR35 investigation. They have, however, stated that those receiving IR35 enquiries have been chosen entirely at random.

The potential triggers for an IR35 enquiry are acknowledged as being one of two things, either direct or indirect.

Indirect: Due to the outcome of another investigation into your business, for example, an investigation into VAT, you have caught HMRC’s eye. Because of this, they may choose to investigate your business further to determine IR35 status and check you are operating compliantly.

Direct: A direct trigger for an IR35 enquiry would be as simple as whether you meet HMRC’s ‘criteria’ for warranting an IR35 enquiry, which could be something as straight forward as low salary and high dividends.

What exactly are these ‘criteria’?

Again, this is something that HMRC has never divulged and it is doubtful that we will ever find out exactly what, if any, are the criteria that trigger an IR35 enquiry. Because of this, it is important to ensure that you are operating as compliantly as possible when it comes to your business. Whether this means having your engagements regularly assessed for their IR35 status, or following HMRC’s guidance to the letter, in general, it is best to avoid any tell-tale signs of non-compliance wherever possible.

How far back can HMRC investigate?

 

HMRC have a three-tier system for determining how far they can look back into your engagements.

  • 4 years- HMRC can extend an enquiry as far back as 4 years for simple innocent error and honest mistakes.
  • 6 years- HMRC can investigate 6 years back into your engagements should they notice any ‘carelessness’.
  • 20 years- Finally, HMRC may go back up to 20 years in the event that they can pinpoint any fraudulent activity or deliberate tax avoidance.

In the Compliance Handbook [CH54300] it states that “the onus of proof of careless or deliberate behaviour is on HMRC”. More information on penalties and so what may constitute 'careless' or 'deliberate' behaviour can be found in the Compliance Handbook [CH81110].

 

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The Company

 

About Us

Why Qdos?

 

Qdos Contractor are one of the leading providers of specialist contractor insurance services in the UK. Our online application process takes only a matter of minutes with all documentation issued instantly. Unlike many other brokers, we don’t hide our premiums until you've provided your details, as we are confident that our premiums, service and product are the best in the market. In addition, Qdos Contractor is one of the leading authorities on the IR35 legislation and have handled well over 1,500 IR35 enquiries on behalf of UK contractors.

 

Our History

 

Qdos began in 1988 as a tax consultancy business and has grown significantly over the past two decades, providing expert business services, products and advice. Over the years, Qdos has grown in both size and reputation as a trusted contractor insurance broker as well as an expert tax advisor. Our aim is to provide UK contractors with the assistance and service with IR35 issues they need as well as sustaining excellent quality and competitive premiums in the contractor insurance market.

IR35 Consultants

 

Defence Experts

1,600+ cases successfully defended
99.6% success rate

 

 

£35m in tax saved on behalf of UK contractors
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IR35 Guidance

 

How to handle an IR35 investigation

1. Seek an expert from the outset

Some contractors believe they can deal with an enquiry themselves or with their accountant’s help. When things start to get difficult however, the contractor and their agent invariably turn to specialists like Qdos for assistance by which time some damage may have already been done and the specialist adviser is faced with a degree of ‘firefighting’.

Whilst there have been some examples of contractors successfully defending their own cases, it is important to get an IR35 expert on side early on who not only understands IR35 but also HMRC's​ processes and tactics.

Enquiries can rumble on for some time, years even, and professional fees can become expensive, even more so if an appeal ends up at tribunal. With an insurance policy in place - contractors can ensure expert defence from the outset without forking out for consultancy fees.

 

2. Be prepared

If a contractor cannot produce evidence that discharges their obligation to consider IR35, this leaves the door ajar for HMRC to consider penalties should the contract fall inside of IR35. The length of an enquiry can be shortened if a contractor has maintained and retained a dossier relating to their working practices, particularly surrounding the areas of control.

3. Communicate in writing

It is preferable to liaise with HMRC in writing. This not only ensures a clear trail of communications but also that you can carefully consider any responses to HMRC's questions. It is very easy for HMRC to trip you up in a face-to-face meeting with loaded questions and semantics.

Where a contractor has agreed to a meeting with HMRC, we would always undertake a mock meeting with the client prior to the actual meeting itself. This prepares the contractor for the type of questions that they will be asked and to coach them in their responses, such as their terminology.

4. Ensure the end client is on your side

In most cases, end clients will not agree to the contractor or their agent being present at any meeting between themselves and HMRC. In these cases, every effort should be made to ensure that HMRC provide the contractor and their representative with an agenda and list of questions to be asked at that meeting.

The agent can then, with the assistance of the contractor, offer to provide the end client with assistance in answering such questions, again in the use of terminology and presenting the facts in the best light. On too many occasions, unwitting end client representatives say the wrong things and allow themselves to be ensnared by HMRC’s leading questions.

5. Know your rights

Do not be scared to enforce them at all times, nor allow HMRC to overstep the legislative boundaries, and do not be afraid to complain about an officer’s behaviour/actions if it is detrimental to the course of the enquiry.

Inspectors are supposed to be impartial, objective and only interested in ensuring that the correct amount of tax is collected, yet attitudes amongst them vary. These type of Inspectors refuse to listen to reason and interpret the facts to suit their own ends and consequently make it very difficult for the enquiry to be resolved expeditiously.

 

How many contractors are caught by IR35?

 

Between 2010-11, there were a reported 6,000 contractors identifying themselves as PSCs and paying taxes as inside IR35. HMRC however believes that this only equates to 10% of those who should be paying tax as inside IR35.

There have been 35 IR35 investigations which have gone all the way to tribunal from 2000 to 2020 - 15 of which were won in favour of HMRC, and 2 of which were split decisions. The total number of enquiries however which have not made it to tribunal is undisclosed, although considered to be in the thousands, as well as how many were found to be inside IR35.

While it is difficult to determine exactly how many contractors are classed as inside IR35, we can say that 91% of individual assessments undertaken here at Qdos via our Status Review platform are outside of IR35 (2017-2020).

Despite this, IR35 is very complicated, and undertaking assessments can feel like a daunting prospect for contractors, with HMRC often found to be treating cases as guilty until proven innocent.

By undertaking IR35 assessments, you can understand the true nature of your engagement and restructure accordingly in order to remain compliant.

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Tax & IR35 Cover

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