06th October 2021
Written by Qdos Contractor
IR35 support proves key in defeating HMRC swiftly and at the first hurdle
HMRC’s pursuit of two contractors engaged by the same client has ended fruitless, after Qdos successfully shut down two IR35 enquiries in their tracks.
Earlier this year, the tax authority contacted two contractors working on projects at the online rail ticket company, Trainline. The tax authority asked for a host of information relating to their IR35 compliance.
From requesting a list of all payments made from the contractor’s PSC in the 2020/21 tax year to all written contracts held by the limited company, HMRC wanted to heavily scrutinise the working practices of these contractors.
Soon after, Qdos were contacted to represent both contractors (neither of whom are affiliated with one another).
Qdos acted on behalf of these PSCs, handling all correspondence with HMRC. We compiled answers to the 57 questions put to one contractor and ultimately proved to the taxman that both of these independent workers belonged outside IR35.
Below we focus on what contractors can take from this development, the information HMRC requested and how Qdos defeated the taxman.
IR35 ‘check’ is no different to an enquiry
In the first letter to both contractors, a HMRC compliance officer described this as a ‘check’ into IR35 compliance - a tactic arguably employed by the tax authority to make this outreach seem routine.
For example, the opening paragraph read:
“Every year we check the records of a number of businesses to make sure they are correct and complete and that the business is paying the right amount of tax and National Insurance Contributions (NICs). We have now selected your business for a check. This check will focus on whether or not any contracts with COMPANY NAME fall under the legislation known as IR35.”
But these letters should be taken seriously by contractors. How responses are handled and the information provided could either close the case or give HMRC reason to launch a full IR35 investigation.
HMRC focuses on all key aspects of IR35 status
As part of this IR35 enquiry HMRC asked 57 questions to one contractor, emphasising that letters such as these are anything but innocuous checks. They are, in fact, important in gathering information and will inform the tax office’s next move.
In this instance, these questions covered the full spectrum of issues important to IR35 status - from Control to Mutuality of Obligation (MOO) and Personal Service. Some examples include:
- Who did the contractor report to?
- How much control did the contractor have over the work that was done?
- Could the contractor provide a substitute? If so, what was the process for this?
- Was the contractor obliged to provide their services exclusively?
- Did the contractor have to accept work offered by the client?
As part of the service offered by Qdos, all questions put to both contractors were answered comprehensively by one of our IR35 specialists, who provided evidence to demonstrate their compliance.
Ultimately, it proved decisive in swiftly shutting down HMRC’s enquiry at the first hurdle.
Investigations to continue despite IR35 reform
The fact that both of these checks took place after the introduction of IR35 reform in the private sector on 6th April is evidence that HMRC will continue to police compliance among contractors going forward.
While off-payroll reform has seen the liability shift from the contractor to the fee-paying party (with the end-client responsible for IR35 status decisions), HMRC have the right to investigate contractors dating back to a time when the PSC carried the risk (pre-IR35 reform).
IR35 insurance, therefore, remains an important policy for contractors.
For more information, take a look at Qdos’ range of IR35 insurance. Alternatively, get in contact with our team of dedicated experts who are ready to assist you with any queries you may have and ensure you have adequate protections in place
