HMRC IR35 Letters to Contractors – August 2019

Bauer & Cottrell were contacted on Friday by lots of accountants, whose clients have received these letters.  Essentially HMRC state they know you treated yourself, as self-employed (outside IR35) but they consider that IR35 applied in 2018/19 tax year and you should also consider the 2019/20 tax year.  Doing nothing is NOT an option.

What HMRC says you need to do by 19 September 2019

HMRC states “After looking at the information we have for the 2018 to 2019 tax year our view is that your contract comes under the off-payroll working rules”.  You need to use CEST or seek advice from a tax expert to check and confirm your status.  If you disagree with HMRC’s view you are then asked to write in with the reasons and evidence or if you agree you need to pay up and calculate a deemed payment.

What if I ignore the letter?

HMRC has stated that they will be checking to see what you did and if you have not done, as asked, they will carry out an IR35 compliance check and may also charge you penalties.

What should I do now?

This will depend upon your previous actions regarding this contract and IR35.

I had an IR35 contract review by an expert/my accountant who said IR35 does not apply.

  1. Get in touch with the IR35 expert/accountant.
  2. Gather the evidence.
  3. Where Bauer & Cottrell have undertaken a contract review and the contract and working practices are outside IR35 we would send through our written report.  We would also compete the CEST tool to support our outside IR35 opinion.  It may be that we have sought and received confirmation from the end client on the working practices so we would say this too.  The outside IR35 case (that has all the evidence) should be easy and in effect we hit HMRC with it all and often get IR35 cases closed in a couple of weeks.

I have no written evidence

  1. If you have nothing in writing or any detail, as to how the IR35 decision was reached and agreed then you will have nothing to send.  We would advise also that care needs to be taken in this respect with regard to liability time limits.  HMRC often tries to claim “carelessness” in order to increase the enquiry period to 6 years instead of the normal 4 years.

I did not get this contract checked at the time

  1. It’s never too late. Get in touch with your accountant.
  2. Consider having a comprehensive IR35 review now (one which looks at the reality of the working practices, as well as the written contract) and also have a play with the CEST (Check employment status for tax) tool.
  3. If you have legal expenses or IR35 insurances contact your insurer to see if this is covered.
  4. Establish with your accountant the likely tax/NIC liabilities if you have got this wrong. Remember you may not be able to claim relief for travel costs if IR35 correctly applies. Do not forget about interest and penalties.

Important things to consider

  1. We do not know what information HMRC has. They could have picked you up from the Onshore Intermediaries Reports or they could have established a lot of information from the client already.  It may be worth asking others at the client site if there is any “gossip” regarding this.
  2. Check out your legal expenses or IR35 insurance.  This may not be a case of simply letting them deal with this, as many policies rely entirely on there being “a reasonable chance of success” and if this is not the case the policy may not cover it.
  3. An IR35 expert or specialist is unlikely to offer to defend your case unless they have formed the opinion (on a balance of probabilities) that IR35 does not apply.
  4. Think about the end client employee that you reported to. Evidence will be sought from them about your working practices.  Are they likely to confirm substitution rights, lack of control etc?
  5. If you do decide to argue your case and an IR35 investigation is opened by HMRC you should be prepared to answer hundreds of questions and your case may drag on for many months and in some cases years before being resolved.
  6. You must act now – there is little time left especially if you (like many others) have taken a holiday.

Please contact us today to discuss our IR35 review services and how we can assist you with your HMRC enquiry.

Kate Cottrell

25 August 2019