Harnett Accountants Kensington – IR35 And Visits From The Taxman

Harnett Accountants Kensington are pleased to present more useful tax tips for your business

IR35 Business Tests Released

If you provide services through your own personal service company you will be aware of the tax law known as IR35. This tax rule imposes an extra charge on your company, if you would be treated as an employee of your customer or customers, if you worked for the customer directly. It is very difficult to pin down when IR35 should apply, as it depends on the relationship between the contractor and the customer, which will be different in every case.

The Taxman thinks he can generalise about what makes some companies fall within IR35 and others escape it. He has drawn-up a set of business entity tests, complete with a scoring system, to help you judge whether your business would be at high, medium, or low risk of being investigated for falling under IR35.

These business entity tests are not derived from the tax law. They merely represent the Taxman’s view of the risk of a business falling within IR35.

The scoring attached to the tests is controversial, as it penalises businesses that have no bad debts, never pay to advertise and operate from the owner’s home. These IR35 business entity tests do not change the IR35 law one bit, and will probably be ignored by the Tax Tribunal.

If you choose to use the IR35 business entity tests, you don’t have to declare your score to the Taxman, the tests are merely for your own guidance. However, if you are concerned that the business entity tests produce a high risk score for your business, we should discuss why this is the case. Are there any changes which can be made to the way your business operates which would make it less likely to be caught by IR35?

We can advise you on the correct tests for IR35, which would be recognised by the Tax Tribunal, so do ask if you would like some reassurance.

Unwelcome Visitors

The Taxman has wide powers to inspect your business, but he is supposed to give you at least seven days notice to check on your business property, computer or business records. He is permitted to turn up without warning, but only if tax is immediately at risk, such as where fraud is suspected.

In spite of these strict rules, tax inspectors do try to examine business records without a prior appointment, or where an appointment has been arranged, the officers may turn up hours early before the tax adviser has arrived. If the Taxman pitches up at your workplace and demands access to your business records, know your rights:

– Ask to see the inspectors’ ID, which they must carry and check this ID is genuine by telephoning the HMRC office they claim to be from
– You don’t have to let the tax officers into your building, and their rules say they must not gain entry by force
– You and your staff are not obliged to answer the tax officers’ questions
– You are required to provide access at any reasonable time to any computer you use for your business, and help the tax officer extract the computer records, but that’s where your responsibility ends
– The tax officers are not supposed to rummage around in your stuff. They can examine materials and records brought to them but they do not have search powers.

Remember if tax officers turn up unannounced, call us without delay!