Would you consider IR35 peace of mind for less than the cost of a round of drinks a month, or would you rather stick your head in the sand? Because it seems that HMRC is again coming after the contracting sector, using poorly constructed IR35 risk assessment tools that will catch a lot of genuine contractors in its net. So it’s a good idea to be prepared.
A perfect storm of IR35 risk is gathering for contractors. On the one hand, we now know that a third of contractors who take the business entity tests and are in the high risk band still go on to pass the more accurate ContractorCalculator Free Online IR35 Status Test.
That means it is extremely likely that, despite being viewed as high risk according to HMRC’s own risk assessment tool, they are outside IR35. HMRC is therefore gunning for contractors using a highly inaccurate risk assessment net likely to catch huge numbers of legitimate contractors.
We also know from IR35 practitioners defending contractors caught by HMRC’s IR35 compliance campaign launched in May 2012 that many such contractors have no IR35 investigation insurance.
Anecdotal evidence shows that contractors without insurance are more likely to be found inside IR35 than those who have, irrespective of the facts of the case. The bottom line is that, when funding the average £5,000 costs of defence from their own pockets and not their insurer’s, more contractors throw in the towel, erroneously thinking to cut their losses rather than fight HMRC.
Finally, a senior IR35 practitioner has calculated that HMRC’s 36-strong IR35 compliance team has the capacity to handle well in excess of 1,000 IR35 reviews each year. That potentially increases the chances of contractors undergoing an IR35 review four-fold.
It certainly brings the risk of an investigation and IR35 review up to that experienced in the bad old days of the early ‘noughties’, when HMRC was busy experimenting with its shiny new IR35 toy.
HMRC now has another new toy, its risk-based approach and business entity tests, which it is equally keen to try out on unwary contractors who can’t afford professional assistance to defend themselves, because they never bothered with tax investigation insurance.
You can bet that if it enjoys some early successes, and generates a decent amount of tax, HMRC will plough further resources into IR35 compliance, resulting in more investigations and more genuine contractors having to pay more tax than they really owe.
But tax investigation insurance, including cover for IR35 investigations, is widely available and can cost less each month than the equivalent of a round of drinks. You even get it included with your PCG membership.
So, for peace of mind, take our Free Online IR35 Status Test to determine your likely IR35 status. And, if you don’t already have it, think seriously about investing in insurance.