If HMRC finds that you have been working on a self-employed basis, described as ‘outside IR35’, when, in actual fact, the service you provide your client reflects that of employment, described as ‘inside IR35’, you’ll be required to pay the missing tax back to HMRC, plus interest and any penalties.
Given HMRC can investigate as far back as six years, being found non-compliant can have huge financial and career consequences.
Essentially, an HMRC inspector will attempt to disregard the written contract in force between the worker and their client and use the actual nature of the working relationship to create a ‘notional contract’.
An inspector, or a tribunal judge, will use this notional/hypothetical contract to determine whether the contract is one of employment, when IR35 applies, or one for business to business services where IR35 does not apply.
Determining whether you are caught by IR35 is complex, and ideally, you should seek expert IR35 advice, and also adopt appropriate systems and processes to help you mitigate the risk and software can play a big part in this.
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