Top 10 tips to survive an IR35 enquiry from HMRC

For contractors, facing an IR35 enquiry can be intensely time-consuming and stressful.

The HMRC scrutiny often requires meticulous attention to detail and a thorough documentation review, potentially leading to disruptions in your work schedule and financial uncertainty.

However, there’s plenty you can do to be prepared should this unpleasant situation arise, writes Kieran Firmstone, tax consultant at Qdos Contractor.

In fact, based on the 1,600 enquiries we’ve successfully defended contractors against, here’s our top 10 tips to survive an IR35 enquiry from HMRC.

1. Take an IR35 investigation letter from HMRC seriously from the outset

Do not ignore the letter, as a prompt and accurate response can sometimes resolve the enquiry immediately, so ensure your responses are timely and well-supported with evidence.

Engaging with HMRC on any type of enquiry can be tricky, so ensure that you seek expert help from a specialist tax consultant at the outset.

2. Notify your IR35 insurer

If you have an IR35 insurance policy, it’s usually a requirement that you notify your insurer as soon as you receive notice from HMRC.

This is so they can get to work on your behalf without delay – therefore notify your provider immediately.

3. The more evidence you can present to HMRC, the better

A significant file of ‘outside IR35’ evidence shows you’ve taken your IR35 status seriously during your engagement, and undertaken an element of your own ‘due diligence.’

The evidence of your outside IR35 status could include a working practices assessment, a signed confirmation of arrangements document from the end-client, and if substitution has been exercised, evidence of payment to the substitute.

4. Always opt to communicate with HMRC in writing

This ensures there’s a clear trail of communication, and that you can carefully consider all questions before formulating a response.

In a face-to-face meeting, it’s easier for HMRC to trip you up with loaded questions or semantics!

5. If you do agree to a meeting with HMRC, go fully prepared

For contractors we represent, we conduct ‘mock meetings’ beforehand, to give them a feeling of how the HMRC meeting may play out.

The aim of these mock meetings is to ensure that the contractor is fully prepared for HMRC questions that might come their way.

Even certain words and phrases you use can carry a lot of weight, as HMRC is notoriously pedantic! 

Importantly though, do not meet with HMRC on your own. Always have the support and assistance of a tax expert to help you at any meeting you agree to have with HMRC.

6. Make sure you and the end-client are aligned

HMRC will be speaking with the end-client during the IR35 investigation.

If you’re giving different answers (than the client) in response to HMRC’s questions, you’ll run into a lot more difficulty, than if you and the end-client are aligned in the responses.

Hopefully, you should have established the nature of your relationship at the outset of the engagement and have plenty of evidence to support it.

7. Be patient

HMRC enquiries can last anything between a couple of months to some considerable years. The tax office will often take its time to request an update or send further information.

8. Respond promptly

Yes, even if HMRC has kept you waiting for answers, you must respond promptly and in line with any deadlines it sets!

This is because if HMRC does win the IR35 enquiry, they can add on additional financial penalties and interest the longer the enquiry has been ongoing if they feel you’ve been dragging your feet.

9. Remember, you have rights (so don't be afraid to exercise them)

If HMRC oversteps legislative boundaries or an officer’s behaviours or actions are detrimental to the course of the enquiry, don’t be afraid to make a complaint.

If you aren’t sure what’s appropriate or what isn’t, companies like Qdos can advise and step in to raise a complaint on your behalf.

10. Don’t go it alone

If you try to manage an HMRC enquiry under IR35 alone, something as simple as your language or phrasing could land you in even more hot water! Even though it’s always better to seek expert advice at the outset of an engagement, don’t worry if you haven’t – you can still receive expert help once an IR35 enquiry is underway.