Taxman refires IR35 cases, albeit just for contractors who are ‘ready’

The taxman is refiring IR35 cases he put on hold because of covid-19, albeit with a new sensitive side, a status review firm says.

Rather than just reopening the enquiry unreservedly, HMRC is checking with the affected contractor whether now would be a good time to pick the case back up, says Qdos.

The firm says one HMRC letter to a PSC it represents states: “I am writing to ask whether you are ready for HMRC to resume compliance activity regarding our IR35 enquiry”.

'More considerate stance'

The letter’s wording indicates that the effects of covid-19 have made the Revenue adopt “a more tentative approach” towards contractors, according to Qdos CEO Seb Maley.

“For the time being, HMRC has adopted a slightly different approach, asking these contractors if they are ready to carry on with their investigation.

“Even so, and despite a seemingly more considerate stance, it shows that HMRC is ramping up its IR35 compliance activity once again.”

'Resurrect if we really want'

But he also said not every IR35 case was being “reactivated” (implying that not hearing from HMRC does not mean the case is closed), but warned that new IR35 cases are now launching.

Status expert Kate Cottrell agrees that not every IR35 investigation is being refired, given that all the IR35 cases which her firm has on its books are “still on hold.”

“But they [HMRC] will resurrect them if we really want them too,” the co-founder of Bauer & Cottrell said, referring to where the firm has contacted the department to request an update.

“Obviously, it’s much better for contractors to have their cases concluded as quickly as possible, because the whole experience is extremely stressful and causes lots of worry.”

'Will turn into IR35 cases'

Interestingly, she also hasn’t seen new IR35 cases – rather, just the foundations of them.

“We are finding that HMRC are starting to open new enquiries, which are not directly linked to IR35 but will turn into IR35 cases,” she said.

“HMRC does have a duty to police the tax system. However, hats off to them for showing at least some compassion [by asking contractors if they are ready for the enquiry to resume].  

'Case meetings severely delayed'

Carolyn Walsh, who used to work at the tax authority, said the general revival in HMRC compliance activity was “exactly what I’m seeing too.”

“HMRC paused enquiries during the worst of covid but these have now restarted,” she said of enquiries generally, in line with Qdos reporting new Section 9A and corporation tax probes.

“But as IR35 enquiries cannot proceed in the same way as before, as visits are on hold and case meetings with managers severely delayed, there’s no point or reason in being heavy-handed.”

'Interest and penalty notifications'

However, the same cannot be said for closed investigations, said Walsh, boss of Andraste Accounting, notably where HMRC already has evidence that a failed ‘scheme’ was used.

“HMRC letters have gone out,” she says, “demanding a return is filed reporting the untaxed income received in 2018/19, and notifying of interest and penalties being charged.”

Reassuringly for end-clients and agencies, no HMRC letters concerning April 2021’s off-payroll rules have gone out to them, not so far, says ReLegal Consulting.

This aligns with what Qdos is seeing, because all of the refired IR35 cases (those which ask if the taxpayer is ready for the reopening), are under the ‘old’ IR35 legislation of 2000.

'Limited company contractors barely surviving'

But even if they do ask about taxpayer readiness to restart the probe, “it seems particularly inappropriate at this moment in time,” says ReLegal’s Rebecca Seeley Harris, citing the still in-force second national lockdown because of coronavirus.

At B&C, a sympathetic Ms Cottrell agrees. “Just imagine the plight of many contractors who have paid themselves salary and dividends, who have had no [pandemic-related income] support from the government whatsoever, and who do not qualify for universal credit.

She continued: “They are barely surviving and often have no work. I fear that receiving an HMRC enquiry of any kind could tip them over the edge.”