The exact reasons for why a person might be investigated over their IR35 status are not actually known by the public. What is known is that once people are suspected of avoiding taxation through IR35, HM Revenue and Customs has a couple of different ways in which they can proceed.

Any contractor could potentially have their IR35 status investigated by HMRC through a random audit of their tax return. This would mean that the entire tax return submitted by the contractor would be viewed in detail. Contractors may also be forced to provide any documents that might be relevant to the tax return as well.

Another way in which HMRC can investigate an IR35 violation is based on risk assessment. When asked how HMRC decides who is investigated thorough this method, a spokesperson said “Any individual who provides his/her services through a service company to an end client potentially falls within IR35. HMRC seeks to narrow those cases subject to investigation by considering a range of factors, including, but not exclusively, sectors, engagement patterns and the nature of the service company.”

Beginning in April, there will be new rules for IR35 employees. It is not thought that these changes will have any effect on how HMRC finds those contractors who might not be in compliance with IR35 regulations. In many cases HMRC can easily identify contractors who might be acting as a disguised employee by simply examining their account activity around the time that tax returns are due.

Source: www.contractoruk.com

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