What is an IR35 compliance check?

HM Revenue and Customs (HMRC) is responsible for enforcing compliance with IR35 rules in the United Kingdom. As part of this enforcement, HMRC carries out compliance checks to determine whether businesses are complying with the rules, and whether they are correctly determining the IR35 status of contractors and making the appropriate deductions from their payments.

Given the subjective nature of IR35, it is prudent for firms to avoid falling into the common trap of "unsafe determinations, " making it easier for HMRC to conclude that more tax should be paid.

During a compliance check, HMRC may review a business's contracts, agreements, and other documentation related to its relationships with contractors. It may ask the business to provide additional information and answer hundreds of questions.

Suppose HMRC finds a business which does not comply with IR35 rules. In that case, it may take enforcement action. HMRC may require the business to pay backdated taxes, National Insurance contributions and also impose penalties and interest.

It's essential for businesses to be proactive in managing their IR35 compliance. Businesses need to take steps to reduce the risk of non-compliance, and should conduct regular assessments, get professional advice, and keep detailed documentation of their relationships with contractors.

To protect your business in advance of an HMRC compliance check, our Tax Investigation Service offers an expert defence team to manage everything for you.

If you have already received a compliance check letter from HMRC, contact us as soon as you can for expert advice and guidance.