With many end-clients deciding to make blanket decision and deem all contractors inside IR35 after April 2020, we’re asking what impact could this have on the contract if you have previously deemed it to be outside. Surely, it stands to reason that, if you’re inside after April 2020, then if you were engaged on exactly the same terms before April 2020, the whole for this contract would also be deemed inside, and therefore open you up to further scrutiny from HMRC and perhaps ultimately a status enquiry?
HMRC have stated that they “will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35” and that “decisions about whether workers are within the rules will not automatically trigger an enquiry into earlier years. They key words in these sentences are “targeted” and “automatically” both of which add a layer of ambiguity to the statements.
I guess it comes down to how much you trust HMRC to stick to their word. At Acumenica, we remain to be convinced that HMRC will be able to resist the allure of such low hanging fruit. The Treasury will come under enormous pressure to ensure that these changes are a success and will seek to maximise the tax recovery. Your current contract may well be in their sights.
So what’s to be done? If you believe that the changes could make you an increased target there are a few things that you can do between now and April:
- If you haven’t already done so, get your current contract and working practices reviewed. Either use the HMRC’s own CEST tool or get an independent review carried out. While this might not help prevent an enquiry opening, it will perhaps help close it down quite quickly.
- Consider not accepting your contract under the new terms. Might be a bit extreme, but if you really and truly believe you’re outside IR35 have the courage of your convictions and walk away. If you don’t accept the new terms there are two benefits: (a) There won’t be a link between the contracts and therefore HMRC are less likely to look closely, and (b) If enough people do this, the client will be forced to sit up and take notice.
- Close down your company. Granted this will not prevent HMRC reviewing your contract status per se, but it will make it more difficult, and this could be a survival of the fittest play: HMRC won’t be able to investigate every contractor and are likely to pick off the easy targets. If you’re seen as a difficult target, they may well move onto someone else.
- Get some tax enquiry insurance. If you do become the subject of an enquiry, it’s very expensive and very stressful. Make sure your advisers are up to the job to help with the stress bit and get some insurance to defray the cost/ Acumenica clients can get this via the office for £159 offering £100,000 in cover for fees and costs arising as a result of an enquiry.
It’s important to note that even if you take the steps recommended above, you might still be selected for enquiry. On the other hand, even if you do nothing, you might NOT be selected. HMRC are a fickle bunch and it can be very difficult to second guess them. Best advice is to keep compliant, do all the right things, plan appropriately and keep your fingers crossed.