From around the 20 June 2012, the HMRC started sending out letters to contractors asking them whether they have considered IR35 and, if they have concluded that the company is not subject to that legislation, to explain the basis upon which they arrived at that conclusion.
We understand the HMRC is seeking the contracts and the supporting explanations for the contractor’s last trading year. The contractor has been given a month to respond and HMRC warns that it may be necessary to arrange a meeting following receipt of the information provided.
This follows on from the new guidance issued by the HMRC on IR35 (www.hmrc.gov.uk/ir35/guidance.pdf) which includes various business tests to “assist” you with deciding if a contract is within IR35 or not – so we thought now was a good time to remind you about IR35.
As with the employment status indicator that HMRC have used for years, the new guidance issued by the HMRC on IR35 is geared in their view and is limited in the way it works. It is always possible to answer the questions to get the result that you require but you always need to provide documentary evidence to support any claims. For instance you can simply answer one question which will put you in the low risk category whereas due to the overall position it likely that you will still be within the IR35 provisions.
The questions are not exhaustive and do not include things such as mutuality of obligation which HMRC have lost on in a number of cases.
And lets be clear on one thing – the rules relating to IR35 have not changed – what has changed is the way the HMRC select a company to determine whether or not to pursue an IR35 investigation.
So, with this in mind, we thought now was a good chance to remind you about IR35;
(1) Ensure you have a signed contract for each engagement you undertake, that passes the IR35 test;
(2) Keep your actual working practices to those that reflect a person in business of their own account – see www.no-worries.co.uk/IR35.asp;
(3) Remember that we have IR35 investigation insurance in place for all clients – this is provided free of charge;