What Happens if I have an IR35 Investigation?

Facing an IR35 Check: What to Expect

Hey there! If you’re contracting in the UK, the acronym IR35 has probably crossed your desk more than once. This piece aims to demystify what happens if HMRC puts your contract work under the IR35 microscope and how you can come out of the process with both clarity and confidence.

Essential Preparation for an IR35 Review

Preparation is a mark of professionalism—and it could make all the difference in an investigation. Before an IR35 review lands, gather these critical materials:

• Contracts for all relevant assignments
• Correspondence with clients (emails, meeting minutes, statements of work)
• Invoices and payment records
• Timesheets or evidence of working patterns
• Proof of business insurances and professional memberships
• Details of substitute work carried out

Take organisational pride: maintain a file for each engagement. This allows you to respond promptly and comprehensively to any official queries.

Navigating an HMRC Investigation: Step by Step

An IR35 investigation can feel daunting, but let’s walk through it in digestible steps:

1. Initial Notification: You’ll receive a letter from HMRC explaining that your status is being examined. Don’t panic—these investigations can be routine.

2. Documentation Request: HMRC will request contracts and supporting materials. Respond promptly but carefully. Involve your accountant or legal representative.

3. Assessment Process: HMRC will review whether you are genuinely self-employed or effectively acting as an employee. They will scrutinise:

• Right of substitution
• Mutuality of obligation
• Degree of control
4. Interviews or Questions: You might be invited to discuss your working practices. Honesty and accuracy are vital—never embellish or hide details.

5. Outcome Notification: HMRC will send their decision. You’ll either be outside IR35 (good news!) or inside, meaning additional tax and NICs may be due.

6. Appeal Option: If you disagree, you have the right to appeal. Seek professional help at this stage if you haven’t already.

Common Hiccups and How to Address Them

Every process has its bumps in the road. Here are some typical stumbling blocks for contractors under IR35 review:
• Vague Contracts: If your contracts lack clear terms, HMRC might default to interpreting them in their favour. Solution: ensure contracts are professionally reviewed.
• Inconsistent Working Patterns: If your daily realities differ from your contracts, this weakens your position.
• Missing Evidence: Gaps in documentation make it harder to prove your case. Build good habits now—save everything.

When in doubt, turn to qualified tax advisors or IR35 specialists. They deal with these investigations daily and can offer clear, pragmatic advice.

Taking Charge of Your Contractor Status

Facing an IR35 investigation is never ideal, but it’s not insurmountable. Preparation, honesty, and seeking the right support are your best tools. Remember, upholding best business practices is both fiscally responsible and essential to preserving our cherished self-employment culture in the UK.

Next steps:

• Review your contracts today for clarity.
• Organise your records.
• If you receive an HMRC letter, seek advice early—don’t face it alone.

Prudent planning today is the best safeguard for your business tomorrow.