Receiving a letter from HMRC opening an enquiry into your IR35 status is stressful, but understanding the process and your rights helps you respond effectively. Early professional advice is critical.
Initial steps
Do not ignore the letter or attempt to handle the investigation yourself. Contact your accountant immediately and consider engaging a specialist IR35 adviser or tax investigation insurer. Respond within the deadline stated in the letter, typically 30 days. Acknowledge receipt and confirm that you are engaging professional representation.
What HMRC will request
HMRC will typically ask for copies of your contracts, working practice questionnaires, details of your substitution history, evidence of how the engagement operated in practice, and your company's financial records. They may also contact the end client and agency for their perspective on the working arrangement.
Building your defence
Your defence rests on demonstrating that the reality of your working arrangement is consistent with genuine self-employment. Gather evidence of control over your working methods, substitution rights and any occasions you exercised them, multiple client arrangements, your own equipment and tools, financial risk, and how you marketed your business. Written records, emails, and documents from the period under investigation are particularly valuable.
The investigation timeline
HMRC investigations can take months or even years to resolve. HMRC will review your evidence, potentially ask follow-up questions, and may arrange a meeting to discuss the engagement in detail. Most investigations are resolved through correspondence, but some proceed to a formal hearing if the parties cannot agree.
Possible outcomes
If HMRC determines your engagement was inside IR35, they will calculate the additional tax and NICs owed, plus interest. You have the right to appeal any determination you disagree with. If the investigation confirms your outside IR35 position, no further action is taken. Tax investigation insurance typically covers your professional fees (accountant and legal costs) throughout the process, which can run to several thousand pounds.