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IR35 Enquiries – Are You at Risk?

Although there is no clear cut answer to this, what must be made aware is that the risk of IR35 is ever present for anyone working as a contractor.

In response to this question, Qdos Director Seb Maley stated:

All contractors who are operating through a limited company and paying themselves in dividends are at risk of an IR35 enquiry. The key is to ensure your stall is set out in advance so you can build the best possible defence should HMRC come knocking. Evidence is vital and it’s important that you prove that you have taken due diligence in determining your position at the outset.

What everyone needs to be aware of is that HMRC are putting more resources into the policing of IR35 going forward, and there is an evident increase in the number of enquiries; this is certainly something we have encountered at Qdos. Over the past few months alone, we have had several new enquiries into our clients. A number of IR35 letters have been received in the past few weeks and we’ve been in conversation with a number of other worried contractor accountants whose clients have received similar letters. The letters they have been receiving so far are all very alike, but all of them include references to IR35.

This HMRC letter highlights how easily a contractor can be put on HMRC’s radar, and if responded to without appropriate understanding, would put the contractor at direct risk of an IR35 investigation.

Although it is true that all contractors are at risk of IR35, exactly how a contractor is selected for an enquiry remains a bit of an unknown quantity. HMRC use their rather vague ‘risk assessment criteria’ to profile high risk cases. Nobody actually knows exactly what this entails, but the Revenue do have various sources of information they can draw upon.

Revenue officers also share knowledge, and given that the relatively newly established specialist teams are likely to work closely together, they may also be slightly more intelligent in sharing information. For instance, if an organisation engages multiple contractors and one of them is found to be caught by IR35, HMRC will know that the other contractors are likely to be subject to the same working conditions and therefore may target them as well. There have also been cases of tips offs within businesses, and although this may be something that is rare, it does demonstrate that there is no clear pattern in how contractors are selected.