Embarrassingly simple IR35/tax investigation question

[DevUK]

Considering I've got up to speed on a lot of the implications of the IR35 reform, I'm missing something really basic here. I'm sure I'll get flamed for asking this but here goes anyway.

A lot of what I've read/heard is that there are certain things that could 'raise a flag' to HMRC causing (important) an investigation. For example, if I were to accept a long contract now deemed outside, and then when liability shifts in April the client panics and determines it inside. It's only speculation of course, but this could cause a retrospective investigation, many are suggesting.

How? How do HMRC know about the status of my contracts? My understanding is that the only people to see my contracts would be the client, myself, recruiter involved (if so), and anybody I've asked to review it. How would something I'm not sure HMRC have visibility of 'trigger' an investigation?

Of course they can see from my tax whether I'm claiming expenses etc. but what's to say I'm even on a contract and not in fact just trading?

Obviously if we're saying HMRC choose a business at random and then they'll investigate contract status if that business turns out to be a contractor. But that's not how this speculation's portrayed, especially when trying to suss out the nuances of the whole (very sincere) 'we won't retrospectively investigate' claims from HMRC.

TLDR:

How can the status of a contract trigger HMRC investigation, when businesses don't submit their contracts to HMRC?

[jamesbrown]

They don't have sight of the contracts and working practices, correct, but they do have sight of a status change when moving from outside to inside at the same client/agent via the intermediary reporting regulations and RTI.

I think you'll agree that moving from outside to inside at the same client is a pretty good indication that something might have been amiss historically.

But, of course, having a hook doesn't mean you're going to catch a fish; the contract and working practices could reflect a real change in status and that the previous contract was legitimately outside.

FWIW, no one knows, in any detail, how HMRC targets companies or individuals for investigations (except that they often arise from routine investigations/records checks following submissions), so it's mostly speculation. But the intermediary reporting requirements were introduced for a reason and the draft legislation also updates RTI to identify where a deemed payment is being made. There are plenty of breadcrumbs in the system now.

[DevUK]

They don't have sight of the contracts and working practices, correct, but they do have sight of a status change when moving from outside to inside at the same client/agent via the intermediary reporting regulations and RTI.

I think you'll agree that moving from outside to inside at the same client is a pretty good indication that something might have been amiss historically.

But, of course, having a hook doesn't mean you're going to catch a fish; the contract and working practices could reflect a real change in status and that the previous contract was legitimately outside.

FWIW, no one knows, in any detail, how HMRC targets companies or individuals for investigations (except that they often arise from routine investigations/records checks following submissions), so it's mostly speculation. But the intermediary reporting requirements were introduced for a reason and the draft legislation also updates RTI to identify where a deemed payment is being made. There are plenty of breadcrumbs in the system now.

Got ya, thanks for the reply, that answers the question.

It was this bit (in bold) I'd never heard of. Is this part of April's reform or this is something in operation now?

[wattaj]

Got ya, thanks for the reply, that answers the question.

It was this bit (in bold) I'd never heard of. Is this part of April's reform or this is something in operation now?

It's in operation now. RTI seems to have been around for ever, but not really. And the reporting stuff has been around for quite some time; maybe three(?) years or so.

[DevUK]

It's in operation now. RTI seems to have been around for ever, but not really. And the reporting stuff has been around for quite some time; maybe three(?) years or so.

Should it concern me that I've contracted for a few years now and not heard of this? It's possible my accountant's dealt with anything needed to have been dealt with in terms of RTI, but I doubt it.

[ComplianceLady]

There's also an additional reporting requirement under the new regs to strengthen this.

[jamesbrown]

Got ya, thanks for the reply, that answers the question.

It was this bit (in bold) I'd never heard of. Is this part of April's reform or this is something in operation now?

Mostly before now, but there are some minor updates to PAYE (resulting from the changes to ITEPA, which includes IR35), including an additional flag in RTI for a deemed payment from April this year. But the breadcrumbs have been cleverly introduced over time, the major one being the intermediary reporting regulations, several years ago.

[jamesbrown]

Should it concern me that I've contracted for a few years now and not heard of this? It's possible my accountant's dealt with anything needed to have been dealt with in terms of RTI, but I doubt it.

The intermediary reporting regulations is a separate thing from RTI with its own reporting format. This is handled by an intermediary above you, such as an agency, should you have one. It wouldn’t be particularly visible to you, beyond a request for some info. from the agency, such as your NI number.

[Snooky]

I may be mistaken but I think agencies are obliged to send various information to HMRC about the contracting companies they deal with. Possibly also about which client that contracting company is providing services to.

HMRC know who the directors and shareholders of all companies are.

So if I was working at HMRC, I'd watch for clients where a load of one or two-man bands were providing services before April 2020, but where the shareholder(s) / director(s) were now operating full PAYE, probably via an umbrella company. For all I know, umbrella companies also have to notify HMRC which clients their workers are working for.

They have a lot of joined-up systems and I think their only issue is understaffing and low staff pay/morale. All they have to do is convince the Chancellor to hike their budget a bit so they can go after thousands of contractors who jumped ship from Ltd Co to full PAYE in March/April.

Similarly, cynical me wonders whether they'll start putting the frighteners on the owners of the many thousands of small companies operating in specific industry sectors who have suddenly applied for closure in the months following April 2020. Given the manpower, they could very easily throw sand in the gears of a company closure and start poking around in the company's history. Or just make some random assessment which the directors/owners have to fight and win before they can get the company closed down.

I really really hope I'm completely wrong

[northernladuk]

Should it concern me that I've contracted for a few years now and not heard of this? It's possible my accountant's dealt with anything needed to have been dealt with in terms of RTI, but I doubt it.

It certainly concerns me and its not my income and livelihood that's on the line.