How can contractors safeguard themselves?
HMRC have stated their expectation that people take ‘reasonable care’ to comply with the tax regime. Demonstrating reasonable care could include the following:
Keep your paperwork in order: Keeping organised and comprehensive records relating to your assignments will help contractors to file detailed and accurate self-assessment tax returns. In the event that HMRC decides to raise an inquiry, these records could provide invaluable evidence.
Check your contract: A contractor should always take the time to read over their contract before signing it. Wherever possible, contracts should include a right of substitution clause stating the contractor’s right to send a substitute in their place or to engage a subcontractor.
Communicate with your agency and/or client: Open communication is increasingly important between all parties who are negotiating the contract to ensure that all are in agreement regarding the contractor’s employment status.
Consider a confirmation of arrangements letter: Where an agency or client uses a generic contract, contractors can use a confirmation of arrangements letter, which asks the client representative to confirm the most important points about their contract and working arrangements.
Seek professional advice: When in doubt, contractors should seek professional advice and consider a contract review service for each assignment.
Avoid acting like an employee: When determining employment status, HMRC examines the day-to-day activities of the contractor. In order to differentiate themselves, contractors should avoid typical employee behaviour, such as always eating in the staff canteen or accepting benefits such as sick pay or holiday pay from the client.
HMRC offers a self-assessment tool to help contractors decide if IR35 applies.
HMRC has stated that they will not carry out targeted campaigns into previous years unless they have reason to believe there is fraud or ‘criminal activity’. However, this leaves HMRC with a broad remit under which to investigate, so exercising due diligence is essential.