Mechanics of an IR35 Investigation

**malvolio** · 1 May 2007, 07:45

The assumption they make is that there is something wrong with your PAYE records. So they will go through them with a fine toothed comb looking for anything faintly amiss (such as SallyAnne's £11k expenses for working 200 miles from home). They will then move on to your employment status and see if you come under IR35. They will want you to answer some hundred or so largely meaningless questions on each contract you have undertaken over the previous 6 years. That takes about 2-3 years, and will have cost you around £15k in advisors' fees (don't be tempted to do it yourself, you'll lose), taken over your life and left you not knowing if you are about to be hit with a bill for several tens of thousands.

The MSC thing is even more confusing now, since they may decide all your MSC earnings were due full PAYE and NICs regardless. That bit hasn't been tested yet, so I hope you aren't the first.

And they can look at anything they want, they can even quiz your ex-clients even if that damages your credibility.

**mjshrimpton** · 1 May 2007, 08:22

Dangerous to make this assumption I am sure, but will they not have felt they dealt with MSC's through effectively abolishing them, so there might not be the impetus to investigate retrospectively. ( I have heard from an agency that lots of IR35 focused people are now not focused on it any more.......)

So the IR35 insurance (through PCGPlus or elsewhere) kicks in and deals with the advisors fees, and pays for representation at meetings if it gets beyond written communication, leaving with you to deal with a load of paperwork, and the tax if and when you lose. Hmmmmm.

This must therefore take place after at least one set of returns has been filed, so a limited starting In April now needs to be ready and prepared for any investigation 9 months after year end, in sync with their first returns?

**malvolio** · 1 May 2007, 08:45

Depends how you look at it. more pessimistic view is that they now have a list of people who have not been paying approriate PAYE and NICs for some time.

In reality, I suspect the MSC thing won't make a huge difference. It was an otherwise legal anomaly that has been closed off. I doubt they have a real case for backtaxing ex-MSC users. But if any of them don't hit the required quality standard for returns next year they may be in trouble.

**Lewis** · 1 May 2007, 09:01

I think I heard somewhere that if a company is dissolved IR35 can no longer be applied, is that true?

**malvolio** · 1 May 2007, 09:06

No. IR35 is a personal tax, not a business one.

**mjshrimpton** · 1 May 2007, 09:08

At a tangent to my original thread

i was talking to a provider of insurance about extending the cover for the period I was at an MSC, and he said there was no point for the following reasons

a) the company is now closed and the Revenue’s window of enquiry is 12 months after the statutory filing date of the corporation tax return, which is Jan 2009 which is when the insurance runs out.

b) because you were never a director of the company, the Revenue could not come to you for any PAYE arrears following an Employer Compliance Review.

**Lewis** · 1 May 2007, 09:21

Originally posted by mjshrimpton

i was talking to a provider of insurance about extending the cover for the period I was at an MSC, and he said there was no point for the following reasons

a) the company is now closed and the Revenue’s window of enquiry is 12 months after the statutory filing date of the corporation tax return, which is Jan 2009 which is when the insurance runs out.

b) because you were never a director of the company, the Revenue could not come to you for any PAYE arrears following an Employer Compliance Review.

Looking on companies house my old 'MSC' from Giant which I left over two years ago is not dissolved. In fact it is showing accounts overdue!

**Vito** · 1 May 2007, 09:56

Originally posted by malvolio

No. IR35 is a personal tax, not a business one.

There was a recent thread on here that suggested this was not quite as clean cut as you suggest...

IR35 relates to how your company operates...it has to as any contracts are in the name of your company and that is who you are operating on behalf of.

If the company then pays you expenses and a salary/dividend split that is not strictly appropriate then that is your company's lookout and not yours.

My understanding from the previous thread (contributed to by an accountant I believe) is that the company is liable for any additional taxes owed. The exception to this is if the employee (i.e. you) knows (or has good reason to believe) that the company is not operating properly and still accepts the pay structure.

I'm not an expert on this so forgive me if I'm wrong, but I just cannot see how IR35 can be seen as a personal tax...in fact, even if the employee knows the company is operating incorrectly I don't see how it can be a personal tax...although in this case I would expect it to be considered tax evasion which is otherwise known as money laundering these days...and that don't sounds too good!

**Lewis** · 1 May 2007, 10:05

I'm sure I read something on this site about IR35 status being successfully challenged for some clients of an MSCP but that HMRC didn't get any money. I assumed it was because company had been closed down (the MSC not MSCP). The person that posted seemed to be suggesting that was why new MSC legislation was introduced. Anyone know any more?

Mechanics of an IR35 Investigation