IR35 Guides - Are you inside or outside IR35?

In light of the new HMRC IR35 guidance, many readers may be wondering what an IR35 enquiry actually involves.

Here, Seb Maley from Qdos Consulting, explains how the Employer Compliance Review process typically works.

Employer Compliance Reviews and IR35 enquiries

Historically many IR35 enquiries have originated from Employer Compliance Reviews (ECR), which is a routine inspection of a company's PAYE affairs.

With contractors, HMRC use them as a 'foot in the door' to pursue IR35 matters. The officers undertaking the initial review will often gather basic information about the contractors engagements and then pass it over to a specialist status inspector to deal with from there.

Following the changes to the way IR35 is going to be administered, it is likely that some reviews will still start with an ECR. However, HMRC will also send out direct letters informing contractors of an impending IR35 review (an enquiry by any other name), bypassing the ECR route.

At the start of each review HMRC will ask 'Have you considered IR35? If so why do you consider yourself to be outside of IR35? Please provide evidence to support this answer'.

This evidence will include details of the contractor's previous engagements; the names of end clients, agencies and contract dates and details of actual working practices.

If the evidence is unsatisfactory or HMRC feel they need to test it they are likely to want to speak to the end user themselves to get their view on how the contractor worked and was treated in reality. If this is unsupervised you could be leaving yourself exposed.

HMRC have already identified the first batch of high risk cases and will be sending out the first of these new letters imminently.

They has also signalled that they will not be slow to use their statutory powers of enquiry to extract information should the need arise.

TLC35 insurance cover

Qdos' Tax Liability Cover (TLC35) insurance covers all representation in respect of any HMRC review or enquiry and also covers all resultant tax, interest and penalties

You can find out more here.