IR35 case closes before it starts

Yet another IR35 enquiry closed, albeit finished before it got started

Qdos have recently received confirmation of another IR35 case closed – great news for both the contractor under scrutiny, and the Qdos tax team.

The enquiry began as an Employer Compliance Review - HMRC’s gambit in the old days for opening an IR35 enquiry - and the enquiry letter notifying our client of HMRC’s intent to conduct the Employer Compliance Review made no mention of IR35.

The client dealt with the review themselves, but following its completion, a letter was received by the client from HMRC stating that the IR35 legislation may need to be considered and that copies of our client’s contracts should be provided.

Qdos were then appointed to deal with the IR35 enquiry.

Copies of contracts were sent to HMRC with an explanation as to why the client was clearly outside of IR35. This was based on the strengths of the working practices, covering each of the three critical status tests, notably right of substitution to which we argued what with there being two directors within the business, they could be used as substitutes for one another.

Correspondence was subsequently received from HMRC advising that the case had been submitted to the IR35 Technical Team for their consideration.

Despite chasing HMRC on numerous occasions, two months after the letter was sent to HMRC alongside our client’s contracts, a further letter from HMRC was received stating that the case was still with the IR35 Technical Team and that they would make contact should they wish to make any further enquiries relating to IR35. Effectively therefore, HMRC were holding the case open indefinitely.

To this Qdos firmly objected, and advised HMRC that this was not fair practice, whilst reiterating the reasons our client was not caught by IR35. This time a response was received promptly from HMRC stating that they did not intend to make any further enquiries and pursue IR35.

A somewhat unusual case, in that HMRC did not ask any questions surrounding IR35 nor make any actual enquiries regarding the application of IR35 to our client’s working arrangements with its end clients. It is unclear whether HMRC even reviewed the contractual terms they had specifically requested.

Engaging a professional expert who understands the rights of the taxpayer and who can and will object when appropriate, can help to bring matters to a swift end. Had HMRC been allowed to keep the case open indefinitely, HMRC could have picked up the enquiry where they had left off at any time they chose, without even having to open a new enquiry.