Keeping Below the Radar of HMRC's IR35 Teams

HMRC currently has four specialist IR35 teams in place around the country, and it is these teams who are going to choose the companies to investigate, and these teams you want to avoid.

Any contractor can be targeted for an IR35 enquiry, there are no set rules for choosing them. However, it can be reasonably assumed that the teams will be looking for worthwhile cases, perhaps with a large pay-out, in order to meet performance targets and so on.

It might sound obvious, but being compliant in the eyes of the IR35 legislation is a good start. The Business Entity Tests which have now been demolished, gave an insight into what HMRC’s inspectors might be risk assessing you on. These included the use of a substitute, marketing expenditure, holding business insurance, and the repair of mistakes. If in doubt, just act like a business and pay your taxes according to your situation.

Making mistakes would be an obvious alert on the imaginary siren in the IR35 team’s offices, which goes off with every late filing and error made. One error on your tax return could be cause to believe that others are likely, and therefore may lead HMRC to look a little deeper into your accounts. Ensuring you pay your taxes correctly and on time may be one way of keeping under the radar, so a good accountant is key.

Another way to avoid HMRC scrutiny is to note on your tax return the reason for any anomalies, such as unusually high expenses. This should help cut down an enquiry from forming after HMRC’s systems flag it up and an inspector starts looking into your case. 

Finally, beware of informants. HMRC are paying out to people who tip them off about suspected tax avoidance. As disgruntled tax payers increase, as do the financial benefits of actually reporting somebody, it is best to keep your financial matters to yourself and try not to make too many enemies.

There is no exact science to avoiding HMRC, so pay your taxes correctly and in a timely manner, whilst ensuring each contract and subsequent working practices are compliant. Regardless of how compliant you are however, there is always a chance of investigation. To prevent any surprises, take out our Tax Enquiry Insurance which will cover for one of our experienced tax advisors to represent you and defend your case from start to finish.