Introduction
The financial impact of 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 an IR35 contract review service, HMRC can also provide an opinion on each of your contracts.
In this article we examine what the service is and advise whether you should use it.
The HMRC IR35 contract review service
The HMRC 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 HMRC should be impartial it is in their interests to collect as much tax revenue as possible. Thus, for all cases they may try hard to prove you are caught by IR35.
If you have taken professional advice for IR35 compliance from an expert 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. Unlike an independent expert, 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 HMRC 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 sensible approach to resolving IR35 issues
To start with read all of our guides to IR35, and take our free online IR35 test. This will give you a very good indication of your status.
Then, get further advice from an qualified lawyer who has experience of the IR35 rules and in particular the IR35 case law.
They can review your contract for IR35 issues and suggest enhancements to be made to help keep you outside of the legislation.
For more information read our article ‘Getting Your Contract Reviewed for IR35’