IR35 enquiries generally begin when you receive a rather unremarkable looking letter from HMRC, entitled 'Check of employer records'. The letter describes how your company has been selected for a check, before dropping in that it's a dreaded 'IR35' check in a much later paragraph. There's plenty of advice available on how to protect yourself, but what do you do in the event of a HMRC enquiry?
The Letter Response
In the letter HMRC will ask whether you have considered IR35, and why have you concluded that you are outside of the legislation. Your initial response is the opportunist to nip things in the bud at the outset. If you're able to provide a strong reply, with accurate evidence as to why you don't need to comply with IR35, there is a chance that HMRC will accept it without further question. If you have IR35 insurance, you should contact your provider prior to responding to the letter to find out if not using a legal representative to respond will affect your policy.
In situations where HMRC are not satisfied with your response, there is every possibility that they will want to drill deeper into your contracting arrangements.
Meeting the tax man
If unsatisfied, it is likely that you will have to meet with two IR35 compliance officers for an interview. If this happens, it's highly recommended to hire an IR35 specialist, as there are many pitfalls at this point. You need to be prepared to have your written contracts and working practices thoroughly examined.
It's worth pointing out at this point that HMRC cannot demand a meeting, and you are allowed to actually deal with correspondence by post if you wish. However, doing it by writing can take considerably longer, and if you've called in specialist support, there's no need to delay the process.
If after this HMRC are still not fully satisfied, they may contact your client for information. This will often be a very long questionnaire, asking your client for numerous snippets of information about the role you perform. If you've worked for a large company, you may be at risk here, as the survey is likely to end up with the legal or HR department, and thus be processed by people you had very little contact with, and who probably have no knowledge of IR35. If your client ends up saying something that leads HMRC to determine that you're a disguised employee, there's very little you can do to salvage the situation. As a result, you should really make as much effort to settle the dispute before it reaches this stage.
Don't let the prospect of IR35 discourage you from contracting. In the past the IR35 enquiry process has been long and protracted, sometimes lasting several years. The situation is now thankfully much more efficient, and HMRC seem genuinely keen to close them as quickly as possible.