IR35 is a very complex subject. Being caught will be very expensive for you, to the tune of thousands of pounds. You can find out exactly how expensive using our IR35 Calculator.
We explain here why you should take professional legal advice when both:
- reviewing your IR35 status
- in dispute with HMRC when they challenge your status.
Clients and agencies protect themselves – so should you
Both clients and agencies take legal advice for the content of the contracts which their contractors (you) eventually sign. They do this to protect them from any legal challenge or action from HMRC, another Agency or you as the Contractor.
After an HMRC inspection neither the client nor the agency wants a huge tax bill for the contractors they have used in the past. They will want to ensure that any tax liability is passed to the contractor.
This inspection can then involve you, the contractor, in discussions with HMRC about your contract or even start an IR35 enquiry of your own business.
It is thus equally important that contractors also take legal advice to protect their interests, namely the very expensive risk of IR35.
Cost of failing IR35
There is a huge difference in your net income depending on your IR35 status. Depending on your contract rate it can range between £2,000 and £10,000 per annum.
You can find out exactly how it affects you using the IR35 Tax Calculator.
To maximise your net income it is important to take legal advice and ensure you remain outside IR35.
And it's not only the cost of the extra tax. The cost of professionals to defend you will run into thousands of pounds too, even if you win. Which is why you should as standard practice have tax investigation insurance.
As a contractor you could be inspected by HMRC at any time. And if they investigate you it means their clever software has identified strong reasons to open an investigation and they expect to get a return. There is no such thing as a random tax investigation. They expect to find issues.
They will challenge the tax status of each of your contracts and can go back six years. It is thus important to ensure your affairs are water tight with respect to IR35.
It is very important to take legal advice to protect yourself against challenges from HMRC. If you don’t take any legal advice then there is no one to protect your interests and the laws are so complex that you stand very little chance representing yourself on your own. And do you even have the time to do that?!
The best HMRC results are achieved when the client or contractor is not prepared for the review. Don't be one of them.
Timings and key checkpoints for getting help
If you are about to sign a new contract then you should immediately ask for a review by a professional to protect your own interests.
Also, if you have been paying tax in previous years as though you are outside IR35 and have not had your contracts reviewed you should do so immediately.
As a first step you can use our online IR35 test, which has been used over 100,000 times.