Business impact of an HMRC enquiry

HMRC Enquiry

Having an HMRC enquiry and subsequent employment status challenge is never a welcome prospect. The costs can be substantial but even putting them to one side, the implications of an enquiry can be considerable even if you know they are self-employed and can demonstrate that eventually to HMRC.

It usually takes a lot of time to have an employment status challenge concluded especially if it goes to a tax tribunal. A typical employment status enquiry will last between 12 and 24 months and that is only if a resolution is reached. If it becomes necessary to list a case at the tribunals it will often end up being more like three of four years before the outcome is known. Needless to say that this is a considerable amount of time to be under enquiry and can subject the tax payer to a very prolonged and stressful period. In addition to the aggravation and hassle, it takes a great deal of time when most company owners would rather spend their time on driving their business forward.

Perhaps the worst part of an enquiry however is if HMRC start questioning the company’s clients and subcontractors. It would be nice to be able to say this doesn’t happen very much but unfortunately it is fairly common place in an enquiry and HMRC do not seem to have an appreciation (or perhaps care) about the damage it can cause to a business.

There is a stigma attached to being under an HMRC enquiry and people will automatically assume it is because the companies have been deliberately avoiding or evading tax which undermines the integrity of the business (especially if the enquiry goes on for a long period of time). This isn’t fair and there are ways of dealing with this but either way it can be damaging for business.

Always trying to look on the bright side of things, if your business manages to survive all of the above you have the issue of how to operate going forward. If you have won the challenge and HMRC have confirmed the individuals can be self-employed it is business as usual. If HMRC win the challenge and demonstrate they should have been employees hence leaving you with a considerable tax liability which potentially could put you out of business, you will then have to operate PAYE going forward. This not only pushes overheads up considerably but is often a problem with the workers as many will simply work somewhere else where they can continue to be self-employed.

RIFT Legal Services cannot stop HMRC enquiring into a business but we can make it as stress free as possible for the business and even ensure the company doesn’t end up with a liability at the end.