Out of contract or closing your company? Don’t neglect IR35 insurance

Discontinuing your IR35 insurance too soon after closing your company or being out of contract could be a mistake.

If you are currently out of contract, or if you have just made the tough decision to close your company, IR35 insurance remains an invaluable form of cover that you should consider keeping in place. You never know when you might need it.

Just because you are no longer working, or have closed your company, that does not mean that HMRC cannot open an enquiry against you retrospectively. HMRC can reject the closure of a company in order to allow them to enquire, but can also reinstate the company following closure. An enquiry opened by HMRC into IR35 may continue for quite some time, years even, and fees can swiftly mount up. Having IR35 insurance in place and an expert handling your defence from the very outset is truly a worthwhile investment.

IR35 insurance operates on a claims-made basis. As such, these policies should be kept in place for as long as there is perceived risk of enquiry, even if you have stopped contracting. For more information on exactly what a claims-made policy is and how this impacts your cover click here.
 

How far back can HMRC retrospectively investigate?

HMRC’s power to investigate retrospectively can go back as far as 4 years under normal circumstances and 6 years where they suspect careless behaviour. An example of what HMRC counts as ‘careless behaviour’ would be mistakenly understating income tax due during self-assessment because of unrecorded work placements. For a fuller explanation of this, and further examples, see HMRC’s Compliance Handbook.

They may also investigate back as far as 20 years where fraud or ‘deliberate behaviour’ is suspected. It is important to note, however, that cases of fraud or deliberate avoidance would not be covered by Qdos’ Tax insurance policies.

Looking back to August 2019, HMRC accused 1,500 GSK contractors of IR35 non-compliance. In letters sent out to contractors HMRC accused a great number of those working for global pharmaceutical giant, GlaxoSmithKline (GSK) of operating outside of the IR35 legislation during the tax year 2018/19.

This goes to show that HMRC are only too willing to enforce compliance in individual PSCs with the threat of retrospective investigation.
 

HMRC’s compliance activity in the future

Considering the effects that a global pandemic has wrought upon the economy of the UK, it may come as no surprise that HMRC’s compliance activity, which in our experience has already been on the rise, is set to continue in its growth.

Whilst HMRC have commented that they do not intend to automatically open enquiries into PSCs based on any changes in status made on 6th April, this should be taken with a pinch of salt. Full information on this can be found in the ‘Rules for off-payroll working from April 2021’ policy paper that was published on 22nd October 2019.

With the Treasury’s resources already decimated by the previous Coronavirus lockdowns and a third lockdown in effect, HMRC will be under mounting pressure to crack down on any perceived tax avoidance in order to contribute towards the emptied pockets of the Treasury.
 

How can you protect yourself from the threat of retrospective investigation?

Even if your company has closed down or if you are currently out of contract, that does not necessarily mean you are safe from enquiry.

Unfortunately, there is nothing you can do to stop an enquiry in its tracks. However, whilst it may seem that we are entirely at the mercy of HMRC’s appetite for enquiries, something you can do is provide yourself with the peace of mind that if an enquiry does arise you’re prepared for it.

There are a few steps you can take to prepare, one of which being the collection and safekeeping of evidence relating to your status. During the initial stages of an enquiry, if you believe yourself to be outside IR35, HMRC will request that you provide evidence to back up that belief. If you are able to provide such evidence this may be enough to satisfy HMRC into relinquishing the enquiry as it stands. An example of evidence could be a completed Confirmation of Arrangements document, a working practices review or contract review, or some of the other provisions detailed in our IR35 enquiry guide that is free to download here.

 

Whist the aforementioned provisions are all positive measures you may choose to take, having an adequate IR35 insurance policy in place truly is the best form of protection. Not only will it provide you with an expert to defend you, but it also covers the cost of professional representation. This replaces the unknown future cost of a professional charging an hourly rate, with the known cost of the insurance premium.

With IR35 Insurance in place you can be sure that you are protected and have an expert fighting your corner to dispel an enquiry as swiftly and effectively as possible.