This is common among people to get the call of investigation for IR35 as a contractor in the UK. This happens mostly when you are caught doing something that is on the wrong side and not according to the legislation. You can end up with hefty payouts if you have made a genuine mistake or your tax filing was late. According to the IR35 set of rules, your client is liable for the tax payments. There can be some possible situations that make the contractor liable for paying the tax and mostly when your client is carrying out a structure of small business in the UK. You must be thinking of ways how to avoid ir35 investigation. Moreover, there are some technical ways of the HMRC investigations if it is called already.
If something has caught the attention of HMRC and they require you to look into your tax affairs, nothing can stop them. But there are certain ways that you can stick to stop the attention of HMRC towards the investigation. Even if you end up being under investigation, you are fully prepared to prove that your case is right. This is only possible when you are on the right side of the legislation and keeping compliant most of the time. To be aware of certain facts regarding this, we have compiled this comprehensive guide to support you in this regard. The discussion involves the reasons that can be caught HMRC’s attention for the investigation, how to avoid getting investigated, what are the possible tip-offs to catch the attention of HMRC, and how is an account analysis related to any of it.
Let us get delved further into the discussion to explore more about it.
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What are the Reasons That Cause HMRC’s Attention Towards the IR35 Investigation?
When you are working in the capacity of a contractor, there can be multiple reasons that can trigger the IR35 investigation from HMRC. As a professional, you must be aware of such practices to keep you and your business away from the investigations. This is because the investigation is usually the last thing that any business would like for itself. Sometimes you are genuinely on the wrong side of the legislation, however, this is not the case all the time. Some other prominent reasons are used and explained below:
1- Random Check From HMRC
The reason for random checking from HMRC can possibly trigger because of you making mistakes in the past or having a history of being dishonest with the procedure of tax returns and filing. This makes HMRC check your practices randomly to ensure that there is nothing wrong going on against the legislation or set of rules.
2- Involved in Some Dishonest Practice
This kind of investigation triggers when you are involved in any kind of dishonest practice or at least HMRC believed that. If you are successful in gathering enough data to prove yourself on the right side, you will be protected. Otherwise, you will have to deal with a hefty amount of fines and other such penalties. Sometimes giving wrong information about your business to HMRC can also come under this category.
3- Whistleblowers and Anonymous Sources
Sometimes there is an involvement of a third party acting as the whistleblower or being an anonymous source telling HMRC about your involvement in some wrongdoings. Or you are acting as the disguised employee for being associated with the clients? This could be an intentional claim against you and you will have to provide proofs that you are on the right side.
4- You Have Made a Mistake in the Tax Returns
This normally happens when you do not understand the set of rules for your unique business needs or your tax situation and HMRC believed that because of the lack of understanding or being a beginner you have made mistakes in the tax returns. This could be intentional or an intentional mistake from your side.
How to Avoid IR35 Investigation in the UK?
When you ensure that you are practising the compliant working completely, this will help you to avoid ir35 investigation from HMRC. This further explained that you are involved on the right side and explaining the right and accurate figures in the tax returns as well. Your working capacity as a contractor and your records will portray the hints and true reflection of your business situation. This way HMRC will trust your working practices and it will not trigger any kind of need or thought that can call an investigation for you.
To ensure this you must be practising gathering the upgraded information and how is it implemented for tax matters and what is the need if your unique business needs as a contractor. This will allow you and your business to keep protect yourself from any kind of investigation and also to gain the trust of HMRC. This is because you are genuinely not involved in being on the wrong side of the legislation or set of rules regarding tax affairs.
The Bottom Line
Now that we have gathered a fair amount of information about how to avoid ir35 investigation, we can bring the discussion towards wrapping up. The practices that are involved in your working capacity must be consciously chosen and ensure that they are not the reason to trigger the ir35 investigation from HMRC. Otherwise, you can end up paying hefty amounts of fines and other such penalties.
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Disclaimer: All the information provided in this article on how to avoid ir35 investigation in the UK, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.