Purchase FO35

It also provides representation from Qdos in the event of a dispute; draft contracts and a draft letter for confirmation of working arrangements; a helpline; insurance against penaties; and free membership of Qdos' own Freeancer Club which offers three free contract status assessments.

Keith Preece from Qdos writes:

IR35 enquiries
Freelancers Outside IR35 is now some three and a half years old. The first claim against the FO35 insurance was received by Qdos Consulting in January 2003. Since then, the tax experts at Qdos have dealt with scores of HM Revenue & Customs (HMRC) enquiries on behalf of freelancers.

The majority of claims against the FO35 insurance have been in relation to IR35 enquiries. This should be of no surprise to anyone, because the FO35 product was designed specifically to advise and protect freelancers against such an eventuality. A key to the success of the product in this regard has been the FO35 manual, which contains advice on the key criteria to consider in operating successfully outside of the IR35 regime, and a detailed guide with which the freelancer may critically review his own contracts. The manual also provides a system for recording supplementary data that will help the tax consultants at Qdos fend off an IR35 challenge by HMRC.

IBOYOA
One of the criteria that both HMRC and the tax consultant should consider in reviewing IR35 status is known as the “IBOYOA” test – In Business On Your Own Account. With this in mind, the FO35 manual facilitates the recording of details such as the company’s supplementary income, and the amounts spent each year on advertising, insurances, training, technical manuals and equipment, which all help to demonstrate that the freelancer is operating as a genuine business.

In one case that Qdos successfully defended, the freelancer had kept details of his company’s non-contracting income, which arose from giving IT training to local children. We even provided HMRC with a photograph of one little boy sporting a T-shirt advertising the company’s services. This might seem relatively trivial, bit it helped to paint a picture of some one who behaved more like an entrepreneur than a disguised employee of his main clients.

All enquiries
Whilst the primary focus of FO35 is the protection of freelancers against challenges to their tax status under the IR35 legislation, the insurance covers all types of HMRC enquiries. These include full and aspect enquiries into company tax returns, enquiries into the personal tax returns of company directors, VAT enquiries, and disputes concerning the operation of the PAYE tax and benefits regulations.

Keith Preece

In a case that was settled earlier this year, a freelance purchasing agent who operated through his own limited company had made a claim against the FO35 insurance in respect of a full enquiry into his company tax return. Although this sort of enquiry is normally only concerned with the accuracy of the company accounts and computations of profits for corporation tax purposes, it does not preclude HMRC from looking at any aspect of the company’s activities. In this case, HMRC quickly found an excuse to look at the contract with the company’s client, and it was feared that the enquiry would turn into an IR35 challenge.

The enquiry into the company accounts found nothing wrong of any significance, but the HMRC Inspector was still not satisfied. He tried to disallow the deduction for wages paid to the director’s wife, but Qdos would not agree.

The Inspector then tried to claim that there was some doubt about the proper operation of PAYE on the wife’s wages, and announced that it would be necessary therefore for his colleague to undertake an Employer Compliance Review (ECR), which is the normal way in which an IR35 enquiry begins.

Qdos settled the matter eventually by complaining at some length to the Area Director, who was obliged to agree that an ECR was unnecessary. He also authorised a modest payment of compensation. The freelancer was pleased that he had bought FO35 and congratulated Qdos for their “blindingly incisive professionalism”.

The FO35 insurance covers the professional fees incurred by Qdos Consulting in dealing with the HMRC dispute and, in the case of an IR35 enquiry, any statutory penalties charged, should the status argument be lost.

Keith Preece
Qdos Consulting

FO35 can be ordered online for immediate cover against a Revenue dispute for £104.50 a year.

Click to purchase FO35