New IR35 compliance letters have been hitting limited company contractors’ doormats for the first time, creating a mixture of anxiety, panic and stress. But Seb Maley of Qdos Consulting urges calm: “Don’t panic, don’t respond instantly and don’t try to fight alone. This is a potentially serious threat to your income,” he continues, “so you should seek help from an expert.”
This first batch of IR35 compliance letters are part of HMRC’s new and beefed-up IR35 compliance measures, so are likely to have been sent to contractors seen by the taxman as being most likely to be inside IR35. “But just because HMRC believes you are at high risk, that does not automatically mean that you are,” says Maley.
The letters seen so far by Maley are positioned as standard employer record checks, but they request copies of all contracts and a breakdown of the company’s income over its most recent financial year. The letters then go on to ask:
“Will you please also tell me whether you have considered the possibility of the company being subject to what is commonly referred to as the IR35 legislation? If you have, and have concluded that the company is not subject to that legislation then please explain to me the basis upon which you arrived at that conclusion. I am asking this to help me be fully aware of and understand any view you may hold on the application of the IR35 legislation.”
“These letters are most likely the start of HMRC’s new compliance campaign, which was announced to IR35 experts including Qdos Consulting at an HMRC IR35 operational meeting in May,” says Maley.
“We were informed by HMRC that an IR35 review would start with the question: ‘Have you considered IR35?’ and then ask the contractor to supply the evidence that supports their answer. So, despite posing as innocent sounding record checks, the questions about IR35 in these letters are too similar to be a coincidence. The specific wording used by HMRC may change but contractors should recognise the letters for what they are.”
Maley warns contractors against responding directly without first seeking professional advice: “HMRC has committed to withdraw from any IR35 review if presented with evidence that places a contractor clearly outside the scope of the legislation. On this basis, a robust and expertly prepared response demonstrating that a contractor is not a disguised employee and clearly in business can halt an investigation before it gets started.”