An Organisation for all
Accountants in Practice

IR35 Enquiries Update

by Contractor Weekly

Contractor Weekly Logo

Are IR35 Enquiries on the up?

The controversy created by the introduction of the public sector rules in April this year, could have understandably led many to believe that IR35 enquiries in the private sector had taken a bit of a back seat. This however seems not to be the case at all, and Qdos Contractor have been notified of a number of new IR35 enquiries over the last few weeks.

It’s important to remember that contractors who work in the private sector are unaffected by the changes to IR35 within the public sector and may operate in the same way as they always have. The new rules will only affect contractors working for public sector organisations who fall under the Freedom of Information Act. Rumour has it that the public sector rules will eventually be introduced into the private sector too, but right now, this has not been officially confirmed.

A move back to the old way of handling enquiries…

In addition to the number of IR35 enquiries we’re being notified of, what is also interesting is that there seems to be a move back to old ways of encountering difficult status inspectors, combined with an unwillingness to accept evidence provided.

 

We are currently defending a client who has an extremely strong case, where crucial supporting evidence has been provided by the end client, which confirms the existence of a lack of control by the end client over the provision of the services, that the contract has a genuine right of substitution and a clear lack of mutuality of obligation. The evidence provided by the end client is supported by case law and we would expect that based on this evidence (in addition to other more minor supporting evidence) the case would be closed in favour of the contractor.

However, the Inspector dealing with the enquiry has refused to accept the evidence, instead needlessly submitting further questions to both the end client and agency, seemingly in an attempt to seek out contradictory information.  The case is now going down the route of an internal review, despite the evidence, which clearly demonstrates that IR35 does not apply to the contract in question.

In the early days of IR35, such practice was fairly common with the length of time defending an IR35 enquiry in part being down to which HMRC Inspector would be dealing with the case. The ‘IR35 Forum’ was introduced in 2011, which followed the publication of the Office of Tax Simplification’s (OTS) review of Small Business Tax, and in 2012 a new approach for the administration of IR35 was to be piloted, one of the aims of which was to close enquiries much quicker – particularly where there was a low risk of IR35 applying.

IR35 Forum meetings were held every quarter but interestingly enough, the forum has gone particularly quiet and there do not appear to have been any forum meetings held since September 2016….

Conclusion:

IR35 enquiries are still very much present despite the focus on IR35 in the Public Sector and implementing the new rules. The changes along with constant rumours regarding IR35 in the private sector, seem to have reawakened HMRC’s campaign, certainly with some Status Inspectors at least.