When a long-time client of IR35 Shield received notice of an IR35 investigation by HMRC, the company turned to IR35 Shield's compliance experts for representation. Within months, the investigation was closed with no tax bill.
The client has been a customer of IR35 Shield since October 2019, and HMRC began its compliance check into their Off-payroll matters in September 2022. By June 2023, after just three letters exchanges and one short phone call, the compliance check was closed.
The Chief Talent Officer for the client said:
""I felt so worried, and getting IR35 Shield to stop the investigation in its tracks was amazing. It was a really good decision to choose IR35 Shield four years ago."
Dave Chaplin, CEO of IR35 Shield, says: "Our compliance-led approach leverages our extensive experience on the front line of IR35 tax tribunals, and this result demonstrates that our unique belt-and-braces approach proves to HMRC that our customers are operating compliantly."
How we helped our client
The client joined IR35 Shield in October 2019 in preparation for the expected implementation of Off-payroll into the private sector in April 2020 (which was then delayed by a year). The client said, "We chose IR35 Shield because they offered the expert knowledge, support and guidance we needed."
The client chose to adopt our proprietary "belt and braces" approach and used our unique “Monitor” compliance package for business. The Monitor solution features monthly re-checking of contractor status, far beyond most advisors' compliance measures, and proved pivotal. Every month, the continuous status re-checking and evidence gathering of every contractor established a robust evidence trail, proving compliance over many years.
Chaplin says: "We were the first company to build an online IR35 assessment and then pioneered Collaborative Assessments and Monitoring, all of which help strengthen our client's compliance.”
"Our considerable experience helping to defend IR35 cases at tax tribunal means we operate at the highest level and deliver a tribunal standard service. IR35 Shield’s years of IR35 tribunal defence work give us unmatched experience handling IR35 investigations. We know what works - and what doesn't."
How the HMRC investigation started
“Receiving an HMRC compliance check, whilst inevitable for a business of our size, raises the stress levels. After the initial call with HMRC - which felt as if they were fault-finding, not fact-finding - we were left feeling very unsure as to what would happen next."
IR35 Shield’s defence team stepped in to help represent us. According to the client, the first phone call with them was "mind-blowing - our team were staggered by the depth of knowledge they had. We felt much better knowing that IR35 Shield was on board - they gave us total confidence and peace of mind throughout the process."
The client gained comfort once IR35 Shield got involved: "I felt a lot of pressure throughout the compliance check, like one wrong step, and it could all go wrong. However, IR35 Shield briefed us on how things may develop, which enabled the business to prepare for potential events. Being forewarned really helped us."
A further letter arrived from HMRC and IR35 Shield explained the jargon and presented the reality of their options - our experience enabled us to unpick the actions HMRC implied needed doing versus what really needed doing.
Chaplin draws attention to deadlines: "In the early fact-find stages of enquiries, HMRC letters include dates by which they want the client to respond. The use of arbitrary deadlines by HMRC is a common tactic to elicit rushed or ill-advised responses from less seasoned advisors. The trick is to know which deadlines are meaningful and which aren't. A competent advisor will easily deal with this to relieve the client's pressure and alleviate any unnecessary panic.
The check progresses to the HMRC specialist IR35 team
The compliance check progressed, and the client was referred to the specialist off-payroll team, which IR35 Shield explained was quite normal.
An initial letter from the specialist HMRC team was then received, which contained strong implications that HMRC's Check Employment Status for Tax (CEST) tool must be used to check all contractors' status within one month. The client was even led to believe CEST had become mandatory.
Chaplin says: "To the untrained eye, the letter implied CEST was now mandatory, must be used, and must be done within one month – none of which is true. So, we dealt with that. Regrettably, the level of 'nudge theory' being used in HMRC letters is alarming, often making non-statutory requests by HMRC appear like they are legally binding."
HMRC ask probing questions
A further letter from HMRC followed with some questions that Chaplin describes as both "leading" and "loaded.” Our response drew on years of experience to help the client avoid being drawn into a protracted and costly investigation.
IR35 Shield first conducted a robust fact-find to ensure that the answers returned were based on fully corroborated evidence. Chaplin says: "It's essential to be truthful and honest when dealing with HMRC. Never make anything up, and make sure everything can be substantiated.
"It also pays to be succinct in the early days of an investigation. Inexperienced advisors sometimes fall into the trap of providing tons of information to HMRC, thinking it will impress HMRC and make them go away. But, instead, it just puts more on the table for them to pick at and can unnecessarily extend the length of an investigation, resulting in more unnecessary time costs."
The closedown letter arrives
A few months later, HMRC rang the client directly and had a short call asking them why they were not using CEST. The client says: "I explained we used IR35 Shield and their Monitoring tools, and HMRC said, 'Ok, that sounds fine'.
"Then, two weeks later, we had the closedown letter. It was all done and dusted. I could not believe it was dealt with that quickly. I was pleased we chose a compliance-led solution all those years ago. The service cost is "nothing" compared to the peace of mind it's given us."
Key lessons and tips
- Strategy: There is no one-size-fits-all approach for how to respond to an IR35 compliance check. A strategy needs to be formed based on each client’s unique situation and circumstances.
- Timings: HMRC letters may contain dates by which HMRC would like you to respond – don't panic. A seasoned advisor will discern which are arbitrary and statutory and deal with them accordingly.
- Knowledge: Base your communications on the underlying case law and facts. Watch out for leading and loaded questions from HMRC.
- Information: Knowing what to give to HMRC and what to hold back can simplify and shorten the process, preventing excessive time costs.
- CEST: CEST is not mandatory. Don't be fooled.
The expert team at IR35 Shield assisted this client to close the IR35 compliance check with minimal fuss.
Let IR35 Shield's expertise work for you too. With our unmatched expertise watching your back, you can rest assured your company is in the most capable hands.
If you are worried about a future HMRC compliance check or need help with an existing one, please get in touch with our tax defence team.Book a free consultation