We caught up with a leading IR35 expert following reports that HMRC has increased its compliance activity in recent months – with an apparent focus on how clients have been assessing IR35 status.
We asked Seb Maley, CEO of Qdos, if he thought the taxman’s IR35 focus had changed – and what contractors and businesses should look out for.
Has HMRC increased its off payroll compliance activity in recent months?
“In a word, yes. After a period of routine IR35 checks, in recent months HMRC has ramped up its compliance activity, approaching more businesses and digging deeper into the processes designed to ensure compliance.”
How has HMRC’s focus changed as far as you can tell?
“Up to this point, HMRC had mainly focused on the processes businesses had in place to make sure of compliance, rather than, say whether IR35 status was determined correctly.
“But we’ve seen a change of tack from the tax office, which has started scrutinising the way in which businesses have gone about assessing and setting IR35 status.”
What sort of enquiries are you seeing at Qdos? Do you have any specific examples of information that has been requested?
“Interestingly, HMRC is probing on the right of substitution, upon which IR35 status can often hinge.
“The tax office has asked businesses if substitutes are used, whether they’re pre-approved, which party pays them and more. From a contractor’s perspective, this highlights the importance of having a competent substitute, who they pay – as opposed to the client paying them.”
You can read more about right of substitution and other IR35 status pointers here.
What should a contractor do if they receive a letter from HMRC?
“In this instance, businesses have been approached by HMRC, not contractors. Under Chapter 10 of the off payroll rules, it’s unlikely contractors will be involved in any check or enquiry until they are very well progressed.”
What are the best ways to protect yourself from the potential stress and expense of an HMRC investigation?
“While HMRC is noticeably stepping up its compliance activity among businesses, contractors can still be subject to an IR35 investigation.
“The tax office can enquire into contracts completed prior to the introduction of the off-payroll working rules, when contractors held the liability. The best way to protect yourself from retrospective investigations is through an IR35 insurance policy.”