What to do if you were declared inside IR35 on April 6th 2017

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From the 6th April 2017, the responsibility for determining employment status shifted to the public sector employer, and no longer be up to the PSC contractor themselves.

According to Contractor UK, confusion is growing among public sector contractors already engaged ‘in-contract.’ What happens if you’re declared inside IR35 by your public sector employer?  If you have been declared inside IR35 by your current public sector employer, that isn’t to say HMRC will automatically look into previous contracts you might have worked in. Past projects aren’t automatically included in HMRC’s review.

It all depends on HMRC’s risk assessment and resources. While HMRC only has resources to commit to 250 new IR35 enquiries every year, it’s worth knowing that your past assignments with the same public sector body could well be investigated pre and post 6th April. Naturally, they want to get a better understanding of your working relationship and agreements.

We also know from the consultation document published last year that there will be a statutory right to appeal against the tax and NIC liability where a contractor is found to be caught by the new rules.

You, the contractor, will be able to request of formal review of the decision, and to appeal it to a tax tribunal just like any other PAYE and NIC case.  At the time of writing, no further information has been given as to whether there will be a special or different process when it comes to this particular piece of legislation.

Here are the steps you might want to take:

  • When it comes to a subject as complicated as IR35, professional and expert opinion helps. In an ideal world you would have done this before you started a contract, but ‘better late than never.’ The professionals will look at a case completely impartially, and use their experience to make a recommendation so you know where you stand. (Ship Shape Accounting is able to provide an evaluation of the IR35 risk in your contract role).
  • Present your independent adviser’s opinion (or yours) to the public sector body, and ask them to reconsider their position. Often there might be factors the end user – or in this case – public sector employer hadn’t thought about during the online IR35 test.
  • If the public sector body’s opinion us immoveable, you’ll need to contact HMRC, and ask them to review the decision.

Throughout the review process HMRC will need to gather the facts and evidence about the engagement. Again, professional help is recommended from the start to make sure that the facts are presented in the best light, supported by case law. This will give you the best possible chance of overturning the original opinion. There are a growing number of status inspectors going to alarming lengths and drilling down into fine details to make sure freelancers and contractors are caught by IR35.

If HMRC agrees to the public sector body’s decision, then consider taking the matter to tribunal. HMRC will need to raise formal determinations, which can be appealed up to the first tier tax tribunal.

Challenging a decision generated by the ESS (the online IR35 tool) will always be tricky, as the public sector body is likely to stand by it and  HMRC is unlikely to disagree with them. Any appeal will therefore hinge on whether or not the public sector body has correctly interpreted and entered information and facts about your working arrangements.