If a taxpayer feels that HMRC has made mistakes, treated them unfairly, or they have been subject to...
An IR35 is a form of tax legislation focused towards the distinction of whether an individual is truly self-employed or otherwise employed. An instance of this is where a person claims themselves to be a Limited Company to service their clients whereas in fact if the term limited company wasn’t used, they could be interpreted as an employee of a bigger company. An contractor tax investigation is carried out by HMRC primarily to establish whether a person’s employment status is correct, while this is not in direct accordance to unpaid tax, it can result in the payment of tax that would be due had that person not claimed to be a limited company, and this can be a substantial amount.
A contractor tax Investigation is generally triggered for two reasons; the first is a relatively routine random selection orchestrated by HMRC as a form of spot-checking. The second is where HMRC has been alerted to potentially suspicious activity within your limited company. Since most self-employed company owners must provide their own resources, instances where the company has declared a low turnover along with a low amount of expenses, yet are yielding a high dividend, alerts HMRC to potential misrepresentation of status. If HMRC selects you for an IR35 investigation, whether you believe you have misrepresented yourself or not, it is crucial to have an expert tax accountant review your company’s expenditure, highlighting any possible reason for HMRC to be concerned with your dealings. A professional specialist accountant can then represent you in any instances where HMRC believes that there is a fault in your status as self-employed. In some cases where you are contacted by HMRC in relation to an IR35 investigation, they will accept an explanation over the phone as to why you are classified as self-employed.
If HMRC decide to further extend their investigation, they will request a meeting with you and your chosen accountant to review and access your records and find potential evidence of your true status. The aim of the HMRC investigation is to recover any taxes they believe could have been lost due to the lower rates that apply to those that are self-employed compared to those that are declared as employed under a company. Using an on-going professional tax accountant to manage your books will aid in reducing your risk of triggering an investigation as well as ensuring all required information is at hand in the case of a random HMRC visit. If HMRC do decide that you are falsely representing yourself under the guise of a limited company you could face serious penalties and an extensive unpaid tax bill, this could extend to the point in time whereby you declared yourself as self-employed.
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