In IR35

The industry news outlet Contractor UK reports that HMRC has begun sending letters to those contractors working through personal service companies whom they consider at high risk of being disguised employees.

The letters, which are based on HMRC’s new ‘risk-based checking criteria’, represent an important aspect of the ‘improved’ means by which the Revenue is to assess whether or not IR35 applies to individual contractors. The letter obtained by Contractor UK clarifies that the new guidance package provided by HMRC, which includes six IR35 scenarios, a business entity test and a summary of the latest taxpayer guidelines, is “not comprehensive” and will not establish definitively whether a PSC is caught by the regulations.

However, while the letter informs recipients that they are under no obligation to disclose which of the three risk bands (low, medium or high) they fall into after completing the entity test, it ominously goes on to declare that HMRC will be writing to those it considers at risk (for which read ‘at high risk’). Contractors receiving the letter who do not believe they are caught by IR35 are asked to supply the Revenue with evidence to this effect.

The letters were sent out last week, and were signed off by three of the Revenue’s new compliance teams. The ‘evidence’ required is likely to include documentation of the previous year’s contracts, along with supporting explanations.

Recipients are advised not to respond immediately (they will be given a month to reply) and to seek expert advice from an independent IR35 consultant in order to prepare a clear and professionally rigorous answer.

Then again, maybe it is less stressful to begin looking for a good PAYE umbrella service.

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