Revisiting IR35 when it goes wrong: record keeping and evidence

When it comes to IR35, record keeping is not just a compliance box-ticking exercise, it’s your business’ evidence in the event of an HMRC enquiry. With the off-payroll working rules placing responsibility for IR35 status assessments on end clients, having clear, well-organised records is essential. 

This blog explores the key areas businesses can get wrong when managing the paperwork and compliance surrounding IR35. 

Understanding the IMPORTANCE of record keeping 

HMRC expects businesses to demonstrate reasonable care in their employment status assessments, so it’s crucial that businesses don’t underestimate the importance of storing evidence. If your IR35 status assessments are challenged, you’ll need to provide a comprehensive evidence pack showing how each challenged decision was made. Poor or incomplete records can significantly impact your ability to satisfy HRMC’s challenges, which could result in financial penalties and reputational damage. 

Before we consider where organisations may go wrong, let’s consider what best practice looks like when managing IR35 record keeping: 

• Centralise records: Use a secure, accessible system for storing all IR35-related documents. 

• Be thorough: Capture both contractual and practical evidence for each engagement. 

• Stay up-to-date: Regularly review and update your policies, procedures, and evidence packs. 

• Involve the right people: Ensure line managers and those with direct knowledge of the engagement are involved in status assessments. 

• Audit regularly: Periodically review your IR35 compliance processes and records to identify and address any gaps. 

IR35 specific policies and procedures 

Start by ensuring you have clearly defined and documented IR35 specific policies and procedures. These should be stored in a file location that is easy for stakeholders involved in the management of IR35 to access.  The documentation should outline how your business approaches employment status assessments, who is responsible for making decisions, and how you ensure ongoing compliance. Policies should cover: 

• The use of assessment tools (such as HMRC’s CEST) – with clear guidance on how colleagues should utilise them 

• The process for issuing and communicating Status Determination Statements (SDS) 

• How disagreements and disputes are handled 

• The frequency of ongoing monitoring and re-assessments 

Best practice: 

Having these policies in writing can help demonstrate to HMRC that your business takes IR35 compliance seriously and applies a consistent approach. It’s crucial though that this documentation is regularly reviewed and updated in line with periodical reviews HMRC make on the off-payroll working rules. This can be difficult to stay on top of, so it’s worth considering engaging an external advisor to support your business with this and highlight changes you need to make. 

Employment status assessments and supporting evidence 

Each contractor engagement must be assessed individually. Your record keeping should include: 

• Completed IR35 status assessments, with detailed reasoning for each decision 

• Supporting evidence such as written contracts, statements of work, and letters of engagement 

• Notes on the contractor’s actual working practices, gathered from line managers or direct supervisors 

Best practice: 

It’s not enough to rely on generic role-based assessments. HMRC expects to see that you’ve considered the specific circumstances of each engagement, referencing key employment status indicators such as control, substitution, and mutuality of obligation. 

It’s crucial that the people undertaking status determinations have a comprehensive understanding of HMRC’s IR35 guidelines, so seek an external training provider if needed. 

Written contracts and statements of work 

A written contract should be provided for every contractor assignment. If these are issued by agencies in your recruitment supply chain, ensure that they are clear, up-to-date, and accurately reflect the reality of the engagement. Include: 

• The scope of work (often detailed in a statement of work) 

• Payment terms 

• Any clauses on substitution, control, and termination 

Best practice: 

Letters of engagement can also help clarify the nature of the relationship. However, remember that HMRC will look beyond the contract to actual working practices, so your records should include evidence that these match what’s documented. If you’re unsure whether your working practices are a true representation of our contractual terms, then consider working with an external IR35 specialist to undertake an audit of your supply chain. 

Ongoing monitoring and re-assessments 

The IR35 status for each contractor cannot be a one-off decision that is never revisited. Circumstances can change – new projects, alterations to working practices, or contract amendments may all affect the contractor’s tax implications. Your IR35 specific policies and procedures should incorporate: 

• Regular reviews of ongoing engagements 

• Re-assessments when there are material changes 

• Documentation of all reviews and any resulting changes to status 

Best practice: 

Keeping a log of these activities shows HMRC that you are proactive in maintaining compliance and helps to demonstrate reasonable care has been taken. If you’re unsure when you need to reassess IR35 status determinations or want to develop an IR35 strategy that proactively mitigates non-compliance risks, then seek the support of an independent IR35 consultancy service. 

Records of training and internal communications 

Demonstrating that your staff understand IR35 is another key part of evidencing to HMRC that your business is taking off-payroll working seriously. Keep records of: 

• Training sessions attended by HR, procurement, and line managers 

• Internal communications about IR35 processes and updates 

• Guidance documents or checklists provided to staff 

Best practice: 

These records help prove that your business is taking reasonable care and that decisions are made by informed personnel. It’s crucial however that the information included in staff training is accurate, up-to-date and provides the right level of detail needed for each participant. Training requirements may differ depending on the stakeholder’s role, so partnering with an external provider can ensure multiple levels of training is developed around your internal processes. 

Handling disagreements and disputes 

If a contractor or deemed employer disagrees with an IR35 status determination, you must have a process for handling disputes. Keep records of: 

• The disagreement, including reasons and supporting evidence provided 

• Your review of the disagreement, referencing HRMC’s employment status indicators 

• The outcome and any changes made to the status determination 

Best practice: 

If a disagreement is raised without reasons, you are entitled to reject it, but you should document this decision. Where you plan to uphold the existing SDS, this brings into importance the need for clear record keeping that you can draw on to evidence that the determination was accurately created based on a clear understanding of working practices. If you have any concerns about whether your disagreement process will stand up to scrutiny, then seek the advice of an IR35 expert to mitigate potential risk to your business.