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What would trigger an IR35 investigation?
Posted Jul 29, 2009
Several contractors have asked us what events lead to an 'IR35 investigation', and how should they protect themselves against such an eventuality.
Kate Cottrell, from employment status experts Bauer & Cottrell, explains:
"Essentially any information including accounts and tax returns held by HMRC can trigger an IR35 investigation. This includes information received when closing down a limited company. HMRC also undertakes risk and research into particular industries and cases can be targeted by trade, by accountant (as the wage record holder), by almost any route where HMRC identifies a risk.
"I have seen many status cases which started with an anonymous letter from a disgruntled worker. The most usual route for an IR35 investigation is from a 'routine' Employer Compliance review although HMRC will have already identified a potential IR35 risk.
"HMRC has now got a whole raft of new powers and penalties that they can use so the best advice is to take reasonable care now to establish your IR35 position so even if you are at risk of an investigation you have a defendable case."
It is important to point out that, from 1st April 2009, the new HMRC penalties regime puts the onus on contractors to prove that they have taken "reasonable care" in showing that their contracts are not caught by the IR35 rules.
Further Information
As there is a significant financial cost for contractors caught by IR35, you should always get a professional IR35 opinion on your contracts. You can find out more in our guide to IR35 contract review services.
Over the past decade, several services have been established to help contractors cover the costs of any type of tax investigation. You can find out more in our guide to IR35 insurance.
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