How do I check I’m complying with HMRC rules?

I have worked as an IT contractor for many years. I recently received a letter from HM Revenue & Customs suggesting I may not have complied with IR35 tax rules on off-payroll employment. I’m confident I have as I’ve received tax advice from my client, but I’m worried about signing the enclosed certificate of my tax position. What steps can I take to check I’m fully compliant?

Karim Oualnan, partner in the London office of JMW Solicitors, says IR35 rules are relevant if a contractor or “self-employed” worker provides services through their limited company or intermediary to a client. If the contract falls inside IR35, the individual will be considered as an employee for tax purposes and will have to pay national insurance contributions and income tax to HMRC as part of the payroll. These rules are designed to tackle tax avoidance by ensuring any “disguised employee” pays the same tax as a payroll employee.

You should refrain from relying on your client’s determination of your IR35 status. Whether innocently or intentionally, your client may incorrectly state your position, and ultimately you are responsible for your own tax. Additionally, if your client is classed as a “small business” in the private sector, you hold tax liability and are responsible for determining your own IR35 status.

It is vital that you keep detailed records of your income and expenses to ensure that you pay the correct tax. Contractors should collect records by maintaining an IR35 dossier throughout the contract.

HMRC employs a variety of tactics to ensure individuals pay the correct tax. A nudge letter is a relatively recent tool, introduced as a pre-emptive way to combat tax avoidance, reminding recipients to review their tax affairs. Given that you have received one, there is a strong likelihood that HMRC suspects you have incorrectly completed a tax return or fall within IR35 legislation.

A certificate of tax position allows recipients to declare that their tax affairs are incorrect, correct, covered by allowances or reliefs, or not liable for UK tax. This gives individuals the chance to rectify any issues with HMRC before it brings an official inquiry.

Determining whether your working arrangement falls inside or outside IR35 is complex and can be subject to interpretation. The first step you can take is to review the criteria used to determine this on HMRC’s website. They include factors such as control, whether you can be substituted, any obligation to give work and any subsequent obligation to do the work.

The consequences of incorrectly completing the certificate can be significant, including penalties, interest and even legal action, including civil or criminal investigations. Therefore, if you are not sure it may be better not to sign the certificate.

You should consider seeking professional advice from a specialist, who can help you to understand your obligations and whether your working arrangements fall within IR35. They can also assist with any paperwork or documentation you may need to provide.

What are my rights if I’m made redundant?

There have been whispers about job losses at my tech company. I am 35 with a girlfriend who works as a teacher and we have no children. I have a meeting scheduled with my boss next week and I anticipate bad news. How does redundancy work and how should I respond? Will it be as bad as often suggested?

Daniel Parker, associate at Winckworth Sherwood, says while hearing about potential redundancy can understandably be distressing, it does not inevitably mean you will lose your job. If that does happen, in the UK you have entitlements which can help financially to bridge the gap to your next role.

In essence, a redundancy arises when the need for you to carry out your role, in your location, diminishes or ceases entirely. Although it can be tough to challenge, it is worth considering whether demand for your role has, in fact, dropped. Equally, if you think that you are being impacted for discriminatory reasons, or because you have blown the whistle, it may be worth seeking legal advice.

In many cases, redundancy proposals involve an employer choosing who it wants to keep from a number of people performing similar roles, such as software engineers. That selection should be based on fair and objective scoring. If you score well, you may well be told you are no longer at risk and that your role is safe.

If you are selected for possible redundancy, your employer should meet you to discuss what the redundancy proposals mean for you, whether there are any available alternatives to letting you go (such as internal vacancies), and what you would receive if made redundant. There may also be an element of consulting collectively with the wider group of affected employees, depending on the number of people being let go.

Should your role be made redundant, you are likely to have some entitlements to help to soften the blow. You will be entitled to notice of your employment ending, which is often one to six months in your sector. You might be asked to work that notice period, placed on garden leave or simply paid a lump sum in lieu.

If you have two years’ service you will also be entitled to statutory redundancy pay. The calculation takes into account your gross weekly earnings, subject to a cap of £643 this year, your length of service and your age. A handy calculator is available on gov.uk.

It is fair to say that statutory redundancy payments are not hugely generous but many tech sector employers offer discretionary enhanced packages. These vary, but might consist of a few months’ pay in addition to your notice. In return, an employer will generally expect you to sign a settlement agreement, confirming you do not intend to make legal claims relating to your employment.

Do also consider what will happen to any shares or other incentives. In the tech sector, employees are often offered potentially lucrative incentives delivered over a number of years. When leaving, it is common to forfeit some incentives which have not yet vested, but those being made redundant often receive favourable treatment.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

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