HMRC Investigation Letter - Next Steps

As HMRC is now actively reaching out to private sector businesses regarding their adherence to IR35 processes, we have created this FAQ page to provide guidance and answers to address any questions you may have.

In April 2021, HMRC introduced IR35 into the private sector, shifting the responsibility for ensuring that contractors are working compliantly to the end hirer. This entails that all end hirers must assess the IR35 status of job roles they advertise and ensure that workers are paying the correct amount of tax, all while demonstrating ‘reasonable care.’ Failure to meet these requirements can lead to the end hirers being liable for fines and penalties.

(For further information on the IR35 legislation changes, please refer to our blog.)

Upon receiving the IR35 investigation letter from HMRC, your initial step should be to acknowledge receipt of the letter. The letter will also contain instructions regarding the specific evidence and documentation required, along with the tax year under investigation. Your business should promptly begin gathering the requisite evidence for presentation to HMRC.

Your business will need to provide evidence and documentation of your off payroll working procedures, your involvement with Personal Service Companies (PSCs), and the data you have from intermediaries like agencies or labour providers. HMRC will confirm which tax year the investigation is focusing on.

Your business will need to acknowledge receipt of the initial HMRC letter in approximately 7 days, although the letter will specify the date you need to respond by.

Your business will have 28 days to collate all information required and respond to the HMRC letter.

NOTE: Everything must be submitted at once and the deadline cannot be missed.

You will not be able to demonstrate compliance and ‘reasonable care’, meaning your business will have not met the terms set by HMRC, making you liable for fines and penalties.

NOTE: If you think your business is at risk, get in touch with our team for further advice.

Around 28 days after submitting the response HMRC will respond and book a team’s meeting (investigation) with your business to go over the information you have submitted.

There is no limit on the number of participants for the meeting. All staff members who contributed to completing the information submitted to HMRC should attend as they will need to provide detailed answers to questions. During the hour-long interview, HMRC will explore the company’s IR35 processes, status determinations, and evidence.

NOTE: All questions must be answered, if HMRC have any doubts or you can’t provide an answer this can trigger a second interview.

All the information provided prior to and discussed during the interview will be reviewed by HMRC’s technical team.

Your business can expect to hear back from HMRC with the outcome (via a letter) within two weeks. This will outline whether any further action (such as follow-up meetings or additional documents to be supplied) is required or if you’ve currently been found compliant based on the information supplied.

Your business needs to seek expert guidance and support to collate the correct information and run a mock audit to help identify – and importantly address – any potential problem areas. This will not only help ensure compliance but also confidence and familiarity with HMRC’s processes should you be investigated. Book a call with Brookson Legal and make sure you are prepared!