Introduction
Being caught by IR35 is expensive, as you can see using the IR35 Tax Calculator.
It is important to know if your contracts pass IR35 so you can structure your
payments accordingly and also to mitigate the risk of a tax bill time bomb in
the future.
In addition to a number of independent experts who offer a review service the
Revenue also provide a similar service.
This article discusses what the service is and advises whether you should use
it.
The Revenue Service
The Revenue service is free of charge and judges whether a contract is a
Contract of Services (Schedule E – Employment) or a Contract for Services
(Schedule D – Self Employment).
After sending in a copy of your contract with details of your business
arrangements, you will receive a decision in writing.
Should you use the service?
Most experts argue that you should not use the service.
Most experts argue that you should not use the HMRC service.
Whilst the Revenue should be impartial it is in their interests to collect as
much tax revenue as possible. Thus, for all cases they will try hard to prove
you are caught by IR35.
If you have taken professional advice for contract reviews who judged you have passed IR35 then there
is little point in asking HMRC for a second opinion. There is little point drawing attention to yourself and risking a challenge.
In borderline cases they might request more information or even conduct a full
blown self assessment enquiry which could cost time and money. They will
certainly not suggest enhancements to the contract to keep it outside of IR35.
They will put you on their list of people to investigate.
If you believe you are caught by IR35 then asking the Revenue for an option is
worthless. They will simply confirm that you are.
Asking the HMRC for a review is like asking a barber if you need a haircut.
It is in their interests to suggest that you do, and take your money,
rather than prove that you don’t!
In a nutshell, don’t do it. Take a more sensible approach.
A more sensible approach
Get advice from an qualified lawyer who has experience of IR35 cases.
They can review your contract and suggest enhancements to be made to help keep
you outside of IR35.
For more information read our article ‘Getting Your Contract Reviewed for IR35’
Published: Monday, September 19, 2005