IR35 Update from Qdos’ Senior Consultant

Bracing yourself for the IR35 storm

Over the last several months Qdos has seen a large spike in new IR35 enquiries. Recently, at least two new enquiries are being registered each week, as contractors seek to be represented by one of the country's leading experts in the field of IR35.

In May of 2012, HMRC told us that it was going to improve its administration of IR35. Part of that improvement was the way in which the Revenue were to conduct enquiries, with a promise that should a contractor provide satisfactory evidence that was to their liking, then HMRC would close down the investigation immediately. They were true to their word…for approximately 18 months! Sadly, over more recent times, HMRC are reverting to type and we are seeing those bad old traits re-emerging. Those methods that we mistakenly thought had been confined  to the annals of history have resurrected themselves.

Evidence that would have been sufficient to close down an IR35 enquiry early two years ago is now being scrutinized and analysed much more closely as HMRC have become increasingly resilient. More often than not, HMRC are seeking meetings with contractors and end clients alike, as they seek to delve into the minutiae of the working relationship of the two parties. There is no doubt that enquiries are taking longer to settle and that is especially so where a stubborn status inspector is involved.

We should not, however, be so surprised that there has been this sudden upsurge in IR35 activity. After all, the Revenue have improved and honed their resources. Instead of the old scatter gun approach, IR35 enquiries are much more carefully targeted and are determined by risk assessment criteria known only to HMRC.

Four specialist IR35 teams now carry out the work and are much more focused.

Whilst it was true to say that a large percentage of initial investigations were concentrated on contractors working in the public sector, the landscape has altered dramatically and the IR35 teams have spread their wings, into the private sector. As well as taking up enquiries in the IT industry, a particular flavour of the month appears to be those involved in the field of telecommunications.

The fact is though that no contractor is immune from an IR35 enquiry, especially as HMRC are committed to undertaking 250 new enquiries each year.

As enquiries take longer to settle, then the costs of professional representation are increased. From start to finish, an enquiry that takes in the region of up to 20 hours to be concluded, could leave a contractor looking at a bill of £2,500 upwards.