HMRC has said that it won’t use new rules to open IR35 enquiries into earlier years. The trouble is the statement is vague, so can you rely on it?
Latest IR35 news
In a statement about IR35 (off-payroll working) at the end of October 2019 HMRC has set out its stall regarding how it intends to manage and enforce the new rules when they take effect on 6 April 2020 (see The next step ). While there’s no change to the principles which determine if IR35 applies, from April 2020 the responsibility for deciding shifts from those doing the work to the business that pays them – but only if it’s a large or medium-sized business. In preparation for this HMRC is tightening its enforcement procedures.
IR35 amnesty?
In its recent statement HMRC says it has “…taken the decision that it will only use information resulting from these changes to open a new enquiry into earlier years if there is reason to suspect fraud or criminal behaviour”. This sounds encouraging but the comment needs to be interpreted carefully.
Limited application
The amnesty only applies if the information which could lead HMRC to start an enquiry into earlier years comes out of “…information resulting from these changes…” . For example, if you’re working under a contract for which you’ve decided IR35 doesn’t apply, but in April 2020 the business you’re working for decides it does, HMRC’s statement means it will not investigate your decision unless it has evidence that you deliberately acted contrary to the law, e.g you falsified documents or facts to support your view that IR35 didn’t apply.
Evidence is key
In practice, the amnesty can only be relied on in very limited circumstances. Tip. Where IR35 could apply to your work, that is, you personally provide services to a client but invoice them through an intermediary (your company, partnership, agency or another person), keep a record of how you arrived at your view that it didn’t apply. This can include results produced by HMRC’s check employment status for tax (CEST) tool.
The amnesty only applies if the new rules produce evidence that IR35 should have applied previously. Otherwise the usual rules for tax enquiries apply. Keep records of how you arrived at your decision on whether IR35 applies.