Specialist insurances and IR35 advice
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HMRC can open an investigation in to anyone, but they tend to base doing so on a risk assessment basis, meaning they target the cases that they think will generate the largest revenue windfall. However, anyone can be selected, so just by thinking you don’t earn enough or don’t pose a threat doesn’t mean you potentially won’t be on their radar. HMRC can go back up to 20 years if they believe you have deliberately lied, but normally it is 4 years if they believe you have made innocent errors and 6 years when they suspect you have made careless errors.
The process HMRC often go through consists of up to eight stages, although it is rare for cases to progress though to Tax Tribunals and higher courts. The eight stages are:
|End client contact|
|Appealing the initial decision|
|Escalation to Tax tribunals|
|Escalation to higher courts|
|The final decision|
In truth there is nothing worse than opening the post to see the dreaded HMRC letter addressed to you informing you that they are opening an enquiry into your company, which previously often started out as a Compliance Review or a general question in relation to a tax return, making no mention of IR35. A Compliance Review will likely mean HMRC requesting a meeting with the contractor, but which you do not have to attend. Nowadays HMRC are more direct and inform the contractor that they are looking into their IR35 status. In any event HMRC have the right to demand, via ‘Schedule 36 Powers’, to see a contractor’s information, books and records, which will likely include the following:
|A copy of all contracts|
|Details of the agencies used to source and land contracts|
|Details of the end clients worked for|
|Descriptions of the services provided|
|Your opinion as to if IR35 applies or not|
|Any supporting evidence you wish to put forward|
All of the above will be for a specified time period, and will be required by a set deadline, all of which will be clearly stated within HMRC’s correspondence. It is not advisable for a contractor to handle a HMRC investigation as HMRC are extremely shrewd in how they approach and handle an investigation, and the initial response is a crucial part of the whole process. Therefore, it is best to utilise the services of a specialist who is familiar with the process and the tactics employed by HMRC.
Our IR35 Tax Investigation Cover and IR35 Tax Investigation & Liabilities Cover products (Coming Soon) provide specialist representation in the event of a HMRC claim, and extend to covering the liabilities due if found inside of IR35.
All of the above will be for a specified time period, and will be required by a set deadline, all of which will be clearly stated within HMRC’s correspondence. HMRC will then review everything you have sent them, and if in agreement and satisfied they will close the enquiry. If HMRC are not in agreement and dispute your IR35 status they will seek further information to which you must respond, a process which can take several turns and can often last for years, and which will see HMRC ultimately issue you with their decision as to if IR35 applies or not, and if it does, they will raise an assessment for the tax, NICs, interest and a possible penalty, an amount that can run in to tens of thousands of pounds.
An appeal can be made to dispute HMRCs decision, using the Alternative Dispute Resolution process and/or by going through the Tax Tribunals, a process which is both timely and very costly. If you win you are at risk of not getting your costs back, and with IR35 cases being both timely and costly it makes holding the relevant IR35 insurance key to not being vastly out of pocket, as it does if the original decision is reversed and you are found to owe back tax, a penalty and interest.
If you aren't a Larsen Howie customer, or are but don't have one of our insurances that provide representation for a HMRC enquiry, we can still represent you to bring about a swift and successful conclusion. Click here for full details.
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