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What factors would trigger an IR35 investigation by HMRC?
Posted May 27, 2010
This answer was provided by Seb Maley from Qdos Consulting.
The usual signpost for HMRC has been the director's remuneration package. Where a contractor receives a low/modest salary but comparatively high dividends then this could give HMRC cause to take a closer look at the freelancer's tax affairs.
Under Self Assessment there has always existed the power for HMRC to launch a random enquiry into a person or company's tax return. Since 1st April 2009, HMRC have also been given new powers of information and inspection to conduct compliance checks at the business premises of taxpayers.
HMRC consider such checks are needed to deter non-compliance and to ensure that compliant taxpayers are not disadvantaged. Future enquiries will originate from Risk and Intelligent Service (RIS) whose objective is to gather information to identify potential enquiry cases.
For a few years now, both the P35 and personal self assessment tax return have required the contractor to indicate if their company is a personal service company making the risk assessment that much easier for HMRC.
Sometimes HMRC will approach large organisations that are known to engage a high number of contractors with a view to carrying out a global IR35 enquiry. This process involves obtaining generic information about the contractual and working arrangements and applying this to all the freelancers working on a particular project.
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