Can IR35 be backdated?
With the IR35 reforms now just over a month away, it really is time to get your house in order by checking your contracts and working practices to ensure you're safely and legitimately outside IR35. If not, we recommend you have necessary conversations with end clients and recruiters to make sure everything is ship-shape for 6th April.
HMRC have confirmed they will not make retrospective claims against limited companies and that they will not conduct targeted campaigns into previous years' tax payments for those whose IR35 status will change as a result of end clients' assessments. Obviously, HMRC reserve the right to look backwards in certain situations and you should always exercise caution.
The four-year rule and six-year rule
Despite how it may seem sometimes, HMRC aren't monsters and they don't assume everyone is out to defraud them. If they find honest mistakes in your accounting (and let's face it, these can happen to anyone), they reserve the right to extend an IR35 enquiry back by up to four years. This means they will look at your assignments and working practices during that period and check that you paid the correct tax and NICs.
If all they find is the odd innocent error then you'll be billed for anything you owe them and everyone is happy.
However, if they find that you have been noticeably and persistently careless, they can extend their enquiry back as far as six years to ensure correct tax and NICs are paid.
It is important to note that for any services provided prior to 6th April 2020, the tax liability sits with the contractor, not the end client.
The 20-year rule
If HMRC looks at your accounts and working practices and suspects there has been deliberate fraudulent activity or tax avoidance then they have the right to investigate as far back as 20 years. If you are found to have been deliberately avoiding tax, there would be serious implications including paying back anything owed, fines, and potentially even a custodial sentence.
IR35 insurance won't help you if you have committed tax fraud, but if you are operating legitimately outside IR35, our IR35 Protect cover can help make sure you are protected should your IR35 Status Determination be challenged for contracts going forward.
It includes £100,000 of cover for taxes and interest from HMRC and penalties from HMRC. It also includes £100,000 of cover for IR35 status enquiry defence costs as well as more traditional Legal Expenses cover.
This means you, the fee payer and client (under the new system) are indemnified in the event of an IR35 status enquiry. The cover also has the option to include one or more IR35 Status Reviews to give you an independent view of where you stand with the legislation.
For more information, you can visit our website or contact the team at Kingsbridge by calling 01242 808740. We can also help you with other aspects of contractor insurance such as Professional Indemnity and Public Liability should you require it.