What to do if you receive an IR35 letter from HMRC.
In the past month, contractors have become acutely aware of HMRC’s approach to enforcing IR35 compliance. According to The Financial Times, less than a fortnight ago, HMRC wrote to nearly 1,500 UK contractors currently or previously engaged by the global pharmaceutical company, GlaxoSmithKline, accusing these individuals of wrongly working outside IR35.
Given in these identical letters, HMRC claims these workers are guilty of non-compliance despite having not yet carried out individual reviews of each contractor’s actual working practices, the tax office has been criticised once again for its aggressive treatment of independent workers.
Because HMRC’s latest attack on contractors could be a sign of things to come, you might be wondering what the best course of action is should you receive or have already received a letter from the taxman regarding your IR35 status.
Do not ignore any letter from HMRC, let alone one that focuses on your IR35 status. While you should never be rushed into responding to the taxman, the sheer sums of money that can be involved in IR35 cases means that you’d be wise to resolve the situation. And anyway, a letter similar to those being sent to GSK contractors, often includes a deadline to respond or either settle. Should you brush it under the carpet and refuse to cooperate with HMRC, you could be fined.
Do not respond to an IR35 letter from HMRC without advice
That being said, responding to an IR35 letter from HMRC without specialist advice is a risk. You are well within your rights to hand everything over to an advisor, who can take care of the entire process on your behalf – from formulating a response in the hope of stopping HMRC in its tracks to handling any further correspondence.
Do not settle
The wording of the most recent letters sent by HMRC makes it clear the tax office believes these contractors are in the wrong, before explaining how these individuals can calculate and then pay their tax bills. Regardless of how aggressive these letters are, contractors are advised against taking HMRC’s word for it and settling.
As Contractor Calculator has rightly pointed out in the past, HMRC has won only one IR35 tribunal outright in the fourteen it has been involved in this decade, suggesting that the tax office itself doesn’t necessarily recognise IR35 compliance.
It’s also important to remember that at the very beginning of an enquiry, HMRC is unlikely to have reviewed your actual working practices, which are considered crucial in an IR35 investigation.
Consider IR35 representation
It goes without saying that the IR35 legislation is complicated. This, combined with the fact that HMRC has been known to unfairly and aggressively pursue contractors, means it’s worthwhile to engage the help of a professional.
Allowing an expert to consider your circumstances, review your contract and handle any resulting investigation is considered a wise move. If like many contractors, you hold IR35 insurance, it is at this point that you are advised to get in touch with your provider.
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