What are the Consequences if I am Caught by the IR35 Legislation?

What happens following an IR35 enquiry 

Every contractor hopes that they never have to go through an IR35 investigation. No matter how robust your working arrangements are, the dreaded letter will always cause doubt and questioning as to what you might have missed or mistakes you might have made. So what if you did have to go through one and the Revenue deem you as a disguised employee?

As the director and owner of the intermediary/personal service company, you are solely responsible for the terms you have agreed to in an engagement and deciding whether each one falls within the IR35 legislation or not. If the engagement falls within the legislation, then your company is responsible for making an IR35 deemed payment, usually at the end of the tax year, on any relevant engagements. Your end user or recruitment agency will not be liable.

Should the Revenue investigate your accounts and deem that the IR35 legislation applies but you had decided that it did not and/or have not made the relevant deemed payment, you will be liable to pay the following:

  • Backdated tax and national insurance contributions on all relevant income as if you were an employee, minus specific allowances
  • Interest on all of the aforementioned liabilities
  • Penalties varying from 0% to 100% of the liabilities, although most commonly charged at around 13%

The penalties charged are determined by the perceived intent of your mistake. If you have taken ‘reasonable steps to ascertain’ your status, then your penalties will be reduced or even nullified. ‘Reasonable steps’ may include having a professional review of your written contract and working practices for each engagement, both offered by Qdos Contractor.

Should you disagree with the Revenue’s decision, you will be able to appeal to an independent tribunal.

Qdos’ Tax Liability Cover (TLC35) is a comprehensive IR35 policy covering from the onset of an investigation with professional representation all the way to tribunal if required. Should you be eventually caught by the legislation, however, the policy will continue to cover for the liabilities, interest and penalties you are charged (up to the limit of indemnity specified), providing you with complete cover in the event of an IR35 enquiry.

By:Jane Hailstone

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