IR35 investigations - how far back?

[Zero Liability]

Theres no set formula. The more the better. T'was always thus. The stronger you make your case, the more chance of HMRC looking for low hanging fruit elsewhere.

I think it's another reason to stick with IR35 insurance until the company is closed and a year after. I may approach the client PM for a COA, I am just alert to the fact that she may be leery of putting her signature on such a document.

[malvolio]

I left the PCG 6 months after becoming a permie, and of course they were quick to try to pursuade me to stay for this reason (no mention of 2 years though). Frankly it sounded like a rip off, and I wasn't about to keep paying for another 6 years, though I suppose you could argue that either way.

On that point the advice is always to hold the membership for the tax year after the one in which you close the company to ensure you are covered should the brown envelope arrive. It's a whole £120 plus VAT admittedly, but it might save you £15k...


After that the envelope isn't coming unless perhaps you were in an EBT or something equally imaginative.

[Jessica@WhiteFieldTax]

Thanks for the info. Would it be fair to say HMRC will generally go through an ECR trigger an IR35 review, as opposed to any other route? From what I have been told by the tax insurer, they can instigate one based on concerns with any aspect of your tax affairs, but in practice is this the case?

yes, thats a fair summation

With respect to showing due diligence, would an outside IR35 contract review suffice, or would one have to go further and e.g. obtain a COA from the end client, or some other form of confirmation from the agency re the upper and lower tier contracts aligning?

Theres no set formula. The more the better. T'was always thus. The stronger you make your case, the more chance of HMRC looking for low hanging fruit elsewhere.

[Zero Liability]

Thanks for the info. Would it be fair to say HMRC will generally go through an ECR trigger an IR35 review, as opposed to any other route? From what I have been told by the tax insurer, they can instigate one based on concerns with any aspect of your tax affairs, but in practice is this the case?

With respect to showing due diligence, would an outside IR35 contract review suffice, or would one have to go further and e.g. obtain a COA from the end client, or some other form of confirmation from the agency re the upper and lower tier contracts aligning?

[ASB]

IMO closing the company would offer no protection whatsoever. Partly because as a director you certainly can become personally liable for things like tax evasion, and partly because IR35 is essentially a personal tax and not a business one. But that's not an expert opinion; it would take somebody to test it.

I left the PCG 6 months after becoming a permie, and of course they were quick to try to pursuade me to stay for this reason (no mention of 2 years though). Frankly it sounded like a rip off, and I wasn't about to keep paying for another 6 years, though I suppose you could argue that either way.

It wont get you out of negligence, thats true. But that can be quite a high barrier. So if you can show reasonable evidence of belief ir clear then you should be fine.

Furthermore, the company does not exist. So they have to do the restoration first.

They key question becomes "well what has changed since you accepted the tax affairs were all in order by not objecting to the striking off".

Its not a get out of jail csrd, but there is little motivatio for hmrc to try and attack. Even if they were to succed they will then have to prove negligence to get the director. That is a much higher bar than the director simply being wrong.

[Jessica@WhiteFieldTax]

IMO closing the company would offer no protection whatsoever. Partly because as a director you certainly can become personally liable for things like tax evasion, and partly because IR35 is essentially a personal tax and not a business one. But that's not an expert opinion; it would take somebody to test it.

Paraphrasing a set of complex rules, to attach personal liability to you, they would have to show negligence.

If someone has had contract reviews, kept a portfolio of IR35 compliance evidence, generally can show they've thought about it, then even if HMRC disagree with the in / out conclusion they could have a tough job proving personal liability.

By contrast it would be easier for them to pin personal liability on someone who had just ignored IR35, "its all a scare story isn't it?"

We've had, via AccounTax, those set of issues, and a well prepared client escaped personal liability in those circumstances - he commenced, for legitimate reasons, closing his company down during a drawn out IR35 investigation (about 24 months and ongoing) and HMRC assessed for IR35 when there were no funds in the company. They assessed personal liability but dropped it on appeal.

[Jessica@WhiteFieldTax]

What's the difference then in liquidating the company that makes it so hard for HMRC to reclaim the taxes? I've seen it suggested elsewhere to keep the company open but maintain as low as possible an amount of money in it, so that HMRC are limited to those amounts if they investigate you and find you inside IR35, as closing the company can be a red flag to them, and they have powers to revive the company, although from what I understand this is where the contractor hasn't undertaken due diligence.

I don't think it makes any difference in practice.

They don't currently seem to be focused on reviewing closing companies so I don't thin its a risk factor of great significance currently.

The idea of keeping the company going with a low amount in it to restrict amount at risk only partly works; its easier for them to recover company funds, but they can try and attach personal liability to officers if company funds are exhausted. So they are not limited to company funds.

12 months, I think, comes from the time HMRC have to enquire into Self assessments. Its a red herring.
Simplifying a set of complex rules, recovery against an officer is only possible if there is a lack of due diligence in running the company affairs.

Also, like the number Jessica mentioned, I've seen it mentioned that HMRC has a 3 month window to object to the company's closure, but I've also seen a figure of 12 months thrown around - what does the 12 months relate to? How long is a sensible period to keep TLC insurance up once the company is closed, if this route is pursued?

3 / 4 months (can't remember) is the statutory waiting time for objections by any creditor / notifiable party to a strike off at Companies House.

They could, in theory, at any time, apply for restoration of a company. There is no 12 month restriction. However I've never known them apply for restoration. Restorations used to be court approved, I think - but am unsure - its now just Companies House approval. But, as I say, its uncommon - I think I've seen two or three companies restored in 25 years.

[VectraMan]

IMO closing the company would offer no protection whatsoever. Partly because as a director you certainly can become personally liable for things like tax evasion, and partly because IR35 is essentially a personal tax and not a business one. But that's not an expert opinion; it would take somebody to test it.

I left the PCG 6 months after becoming a permie, and of course they were quick to try to pursuade me to stay for this reason (no mention of 2 years though). Frankly it sounded like a rip off, and I wasn't about to keep paying for another 6 years, though I suppose you could argue that either way.

[Zero Liability]

What's the difference then in liquidating the company that makes it so hard for HMRC to reclaim the taxes? I've seen it suggested elsewhere to keep the company open but maintain as low as possible an amount of money in it, so that HMRC are limited to those amounts if they investigate you and find you inside IR35, as closing the company can be a red flag to them, and they have powers to revive the company, although from what I understand this is where the contractor hasn't undertaken due diligence.

Also, like the number Jessica mentioned, I've seen it mentioned that HMRC has a 3 month window to object to the company's closure, but I've also seen a figure of 12 months thrown around - what does the 12 months relate to? How long is a sensible period to keep TLC insurance up once the company is closed, if this route is pursued?

[Jessica@WhiteFieldTax]

No I still have the company, partly because I don't know how to shut it down and the few hundred quid left in it does not make it worth while paying somebody else to. I do the returns myself, but as the revenue is zero there is no tax to pay, so if I do make a mess of it, HMRC are hardly going to be beating down my door... (when I was contracting the returns were done by an accountant, btw)

If everything in the company is tax paid, then:

~ close bank account and transfer funds to you
~ DS01 form to Companies House
~ write to HMRC and ask them to close files for CT, VAT and PAYE. Tell them no income since last returns, company has been inactive.

Statutory waiting period of 3 months or so on DS01 for objections, once thats through Companies House close the company automatically.

[Jessica@WhiteFieldTax]

An IR35 investigation is not a standalone activity, it will derive from an aspect enquiry on your last year's SAR,

Thats not quite correct: it comes through the Employer Compliance route not the personal or corporate SARs. So its not an aspect enquiry as such, different set of rules.

But I agree, once the company is closed, OP would be unlucky to get any interest afterwards.

[bananarepublic]

Not the question you asked but if the co was dissved the there is no entity to investigate.

Hmrc could get the co. Restored and attempt to tranfer the debt, but they would probably struggle. Theg had a chance when co going through dissolution.

No I still have the company, partly because I don't know how to shut it down and the few hundred quid left in it does not make it worth while paying somebody else to. I do the returns myself, but as the revenue is zero there is no tax to pay, so if I do make a mess of it, HMRC are hardly going to be beating down my door... (when I was contracting the returns were done by an accountant, btw)

[ASB]

Not the question you asked but if the co was dissved the there is no entity to investigate.

Hmrc could get the co. Restored and attempt to tranfer the debt, but they would probably struggle. Theg had a chance when co going through dissolution.

[malvolio]

An IR35 investigation is not a standalone activity, it will derive from an aspect enquiry on your last year's SAR, which is effectively running a year in arrears. Therefore the advice is to continue your membership for the year you stop trading and the year after that. It's unlikely anything will kick off after that.

[bananarepublic]

Apologies if this has been covered before, but how far back can HMRC go for IR35 investigations?

I've seen it said that HMRC can go back 4 years for tax and 6 years for NI, but what does this relate to? If my company year ends, say in October, I have to submit a corporation tax return 12 months later, at the latest. When does the 4 years start? From the end of the company tax year in question, or 4 years after the corporation tax return is submitted (i.e. 5 years after the end of the tax year). How do these rules apply to N.I.?

The background is that I finished contracting several years ago and want to know whether it is worth renewing my PCG membership.

P.S. I've left my company open for a possible return at some point to contracting.