What are the chances of actually being investigated?

[Dandyman]

Think my earlier post got lost with a dicky internet connection.

To add some figures to malvolio's comments.

There are roughly 1 million active small businesses in the UK (small means <250k turnover).

HMRC conduct roughly 3-5,000 investigations from its small business compliance team each year.

So your theoretical chances are (very roughly) 0.3-0.5% pa.

However, HMRC do not generally conduct random investigations. Your chances of investigation are much increased if you:
- miss more than one PAYE return
- have wildly fluctuating corporation tax from one year to another
- miss a VAT return (though generally the VAT team are not interested in IR35 compliance issues).
- miss a corporation tax return

Provided you keep your nose clean, then the chances of investigation are relatively low. BUT, the costs of dealing with an investigation will quickly run into tens of thousands - hence insurance is a good idea.

thanks, this is the sort of in depth response I was after.

An under 1% chance of being investigated then, and despite some of the other comments on the thread, I would have thought with the state of the economy, the resources at HMRC and if the Tories come in and abolish IR35 that any backdated investigations will hardly be a priority.

Doesn't seem like much is going on currently either with IR35 investigations. Maybe as others in the thread suggested there are not currently the resources for this and other areas take greater priority at the moment.

[Qdos Contractor]

We've literally just written this short article about IR35.

All quiet on the IR35 front

We are regularly being asked by freelancers “what has become of IR35?” due to the fact that HMRC’s activity in this area during 2009 was inert. The last important and notable IR35 event occurred in September 2008 when the High Court decided in favour of HMRC in the Dragonfly case.

In the Summer of last year HMRC’s feeble IR35 tax yield during the period 6th April 2002 – 5th April 2008 was exposed and one might have been forgiven for believing that the Revenue had given up the ghost. As we reported in our article of June 2009, however, there appeared to be no plans to re-think or scrap IR35 even if a Conservative government is elected this year. So what is happening with IR35?

The answer may be twofold. The most recent and important status cases within the last 15 months have involved the construction industry. For the last few years, following the implementation of new CIS rules from 2007, HMRC’s status resources have been chiefly deployed in the construction industry as they view it as a soft target to extract decent tax yields. Further evidence of this attitude was demonstrated by the publication of HMRC’s consultation document, in July 2009, entitled ‘False self-employment in construction: taxation of workers’. There has therefore been less manpower to throw at IR35 cases.

From 1st April 2009, HMRC inherited new and wider ranging powers of inspection and for much of last year tax officials were getting up to speed with these and it was only in the last quarter of 2009 that Qdos started to notice the increasing use of these powers. It is fully expected that 2010 will see a greater increase in inspections at the premises of taxpayers and these are likely to include a fair number of personal service companies where IR35 has been flagged as a potential issue.

Whilst IR35 may have been hibernating for the last few years it could well be about to awaken and contractors must not be complacent. Keep watch and be vigilant.

[SneakySimon]

Dodging HMRC

Removed.

[northernladuk]

In my first year, I missed several payments of PAYE when I went on the bench and also a single VAT payment. Both times I talked nicely to Hector who I was surprised by - they were very helpful, asked lots of questions, begged for forgiveness and 3 years later, seem to have avoided any inspection.

I always worry about my VAT - sometimes I underpay a month if I am short of cash and try to make it up next quarter. I also probably only have around half my recipts so when i get investigated would most likely be up tulip street!!

FTFY

I thought VAT was the one you DON'T bugger about with!!

[SneakySimon]

Vat

Removed

[gingerjedi]

We've literally just written this short article about IR35.

All quiet on the IR35 front

We are regularly being asked by freelancers “what has become of IR35?” due to the fact that HMRC’s activity in this area during 2009 was inert. The last important and notable IR35 event occurred in September 2008 when the High Court decided in favour of HMRC in the Dragonfly case.

In the Summer of last year HMRC’s feeble IR35 tax yield during the period 6th April 2002 – 5th April 2008 was exposed and one might have been forgiven for believing that the Revenue had given up the ghost. As we reported in our article of June 2009, however, there appeared to be no plans to re-think or scrap IR35 even if a Conservative government is elected this year. So what is happening with IR35?

The answer may be twofold. The most recent and important status cases within the last 15 months have involved the construction industry. For the last few years, following the implementation of new CIS rules from 2007, HMRC’s status resources have been chiefly deployed in the construction industry as they view it as a soft target to extract decent tax yields. Further evidence of this attitude was demonstrated by the publication of HMRC’s consultation document, in July 2009, entitled ‘False self-employment in construction: taxation of workers’. There has therefore been less manpower to throw at IR35 cases.

From 1st April 2009, HMRC inherited new and wider ranging powers of inspection and for much of last year tax officials were getting up to speed with these and it was only in the last quarter of 2009 that Qdos started to notice the increasing use of these powers. It is fully expected that 2010 will see a greater increase in inspections at the premises of taxpayers and these are likely to include a fair number of personal service companies where IR35 has been flagged as a potential issue.

Whilst IR35 may have been hibernating for the last few years it could well be about to awaken and contractors must not be complacent. Keep watch and be vigilant.

Roll up come and get your contracts inspected here, Hector is after you don't you know...

[goldilockz]

Hello,

I just wondered if the information in this thread still applies, since it's 7 years later? How likely is an IR35 review and if, for example, the individual owning a limited company were to operate an honest business, always paying the correct amount of tax on time etc. would they likely avoid investigation?

[BlasterBates]

The chances of being investigated are still small and it looks like HMRC won't be pursuing individual contractors in any great numbers as they've switched their focus to agencies and clients making them enforce IR35 at least in the public sector. We'll need to see if they decide to extend this clampdown into the private sector, but that won't be for at least a year, and they maybe satisfied simply having clamped down on the public sector.

[SueEllen]

The chances of being investigated are still small and it looks like HMRC won't be pursuing individual contractors in any great numbers as they've switched their focus to agencies and clients making them enforce IR35 at least in the public sector. We'll need to see if they decide to extend this clampdown into the private sector, but that won't be for at least a year, and they maybe satisfied simply having clamped down on the public sector.

It depends if more companies are taken to court to argue people, their workers, are employees.

I suspect at some point someone will take a pop at a government department.

[Cirrus]

would they likely avoid investigation?

Your chances of investigation are low but what counts is if fate picks on you then you get QDOS or whoever engaged as soon as the Revenue come sniffing anywhere near you. They defend you vigorously and in most cases the Revenue slip up or more likely give up. It's not pleasant and it can drag out for a long time but they do seem to be very good at frustrating the Revenue - ruthlessly exploiting all their weaknesses.

I suspect the Revenue make their money, not by catching people but rather by the deterrent effect of somewhat token actions.