IR35 and Tax/NIC Status Advice You and Your Clients can Afford!

Contractor Guardian

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FREQUENTLY ASKED QUESTIONS ON HMRC’S NEW APPROACH TO IR35 FROM April 2012

What has changed?

The most important thing to remember is that the IR35 law has NOT changed so you still need to consider your IR35 status on a contract by contract basis.

HMRC has put in place specialist IR35 teams and initial cases for IR35 investigation have already been selected. We also have a new ‘Business Entity’ Test which enables you to check your level of risk of an IR35 investigation. This is NOT an IR35 status test. New Scenarios have been produced which, provide situations that help to explain when and why IR35 would apply and when and why it would not apply. Guidance has been provided to explain all the aspects of HMRC’s new approach to IR35 together with improvements to HMRC’s IR35 Helpline.

The most important change is the New Operational approach which will be piloted for 12 months effective from April 2012. HMRC will try not to open any reviews into low risk individuals but this is very much a test and learn phase and results will need to be measured and evaluated. As a result of any feedback and experiences HMRC may change their processes. The new approach includes the following:

Do I still need to bother with IR35 if I have taken the new Business Entity Test and I am low risk?

Yes you must still consider your IR35 status for each and every contract as the IR35 legislation has NOT changed. You can be low risk and have contracts inside IR35 and high risk and have contracts outside IR35. HMRC makes it quite clear that even if you have an odd contract that is inside IR35 you need to pay the appropriate taxes.

What evidence do I need to keep so that I can answer HMRC’s opening letter?

Our Guardian service covers each and every contract, extension and renewal over a 12 month period and we also carefully review the actual working practices. This means we already have all the information to hand to defend your outside IR35 position at this stage.

How does this affect my IR35 insurance?

We have always had contracts in place with the main providers of IR35 insurances so you may be covered for this first new step and you can nominate us to defend your case in the usual way. However some providers do not cover any of the IR35 issue until the case becomes a “dispute” i.e. at the point that HMRC issue their IR35 opinion. If this is the type of cover you have then it is unlikely that the new HMRC opening process will be covered.

What happens when I receive the HMRC letter?

If you are a Guardian client then please call us and your insurance provider immediately. This is a completely new process with the first HMRC letters due out at the end of May 2012. We anticipate that you will receive the brown envelope asking the question and expect that there will be a deadline for replying so it is vital to make contact with us at the earliest opportunity.

Why do Bauer & Cottrell offer this HMRC defence service for free?

As a Bauer & Cottrell Guardian client you will be able to demonstrate that you have taken reasonable care over your IR35 status, as we review all of your contracts and your working practices over a 12 month period. By offering this new free service we are simply supporting our professional opinion that your status is outside IR35. In the event that you are selected for investigation we will work with you and you can appoint us to act on your behalf to defend your case with HMRC.

We believe that we offer the most comprehensive IR35 contract review service available and as independent specialists we aim to give you an IR35 opinion, upon which you can rely, rather than one which you want to hear!

Is this new approach by HMRC set in stone?

No, HMRC’s new processes are being rolled out on a pilot basis for the next 12 months. HMRC need to evaluate the effectiveness and changes may be made depending on the findings. We will of course keep our Guardian clients up to date with any new developments.

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Bauer & Cottrell Limited, Registered Office – 1st Floor, 102-104 Dunstable street, Ampthill, Bedfordshire MK45 2JP – Registered in England No: 05775995
Tel: 01525 406622 Email: info@bauerandcottrell.co.uk