IR35 Investigations Explained

What an IR35 Investigation Really Is

For many contractors, the phrase “HMRC investigation” conjures images of tribunals, surprise visits, and instant penalties.

In reality, IR35 investigations are usually slow, administrative, and quietly stressful rather than dramatic.

An IR35 investigation is HMRC’s attempt to reassess whether a contractor’s engagement should have been taxed as employment. It’s not a criminal process. It’s a civil enquiry. But that doesn’t make it light-touch.

Once an investigation starts, it tends to follow its own rhythm and it rarely resolves quickly.

How IR35 Investigations Usually Start

Contrary to popular belief, most IR35 investigations do not start because a contractor has done something obviously wrong.

Common triggers include:

• Sector-wide compliance campaigns

• Random sampling exercises

• Data mismatches (returns, expenses, dividends)

• Information obtained from clients or agencies

• Historic patterns across multiple contracts

Sometimes there’s no visible trigger at all. HMRC doesn’t need suspicion to open an enquiry, only jurisdiction.

This uncertainty is one reason IR35 creates ongoing anxiety even for compliant contractors.

The First Contact: What Contractors Actually Receive

An IR35 investigation almost always starts with a letter.

Not an accusation. Not a conclusion. A request.

HMRC will typically ask for:

• Contracts covering specific periods

• Details of working practices

• Information about clients

• Explanations of how engagements were structured

At this stage, HMRC is gathering information, not making determinations.

How contractors respond at this point matters more than many realise.

Why Early Responses Matter So Much

IR35 investigations are shaped early.

HMRC forms a view based on:

• Consistency of answers

• Tone and clarity of explanations

• Alignment between contract and reality

Poorly phrased responses, over-sharing, or emotionally defensive explanations can weaken an otherwise solid position.

This is why experienced advisors often stress one thing: don’t treat early correspondence casually.

Once a narrative forms, it’s difficult to reverse.

What HMRC Is Actually Looking For

Despite the paperwork, HMRC’s focus is narrow.

They are looking for employment indicators, not perfection.

Typical lines of enquiry include:

• Who controlled the work

• Whether substitution was realistic

• How embedded the contractor was

• Whether there was ongoing obligation beyond defined scope

They are less interested in:

• How skilled the contractor is

• Whether the contractor feels independent

• Whether the contractor pays a lot of tax

This mismatch between what contractors value and what HMRC assesses is a recurring source of frustration.

Interviews: Where Many IR35 Cases Are Won or Lost

In longer investigations, HMRC may request interviews with contractors, clients, or both.

These are not interrogations. But they are structured.

Common problems arise when:

• Contractors answer hypothetically rather than factually

• Clients describe day-to-day realities differently

• Language used sounds managerial rather than commercial

Even small wording choices can matter. Saying “my manager” instead of “my client contact” might feel trivial, but it feeds HMRC’s assessment.

This is one reason professional representation is often recommended during interviews.

Timeframes: Why IR35 Investigations Drag On

IR35 investigations are rarely quick.

It’s common for enquiries to last:

• 12 months

• 18 months

• Sometimes longer

Delays come from:

• HMRC workload

• Back-and-forth correspondence

• Requests for historical information

• Internal reviews within HMRC

During this time, uncertainty hangs over past income and sometimes future plans.

This prolonged ambiguity is often more draining than the final outcome.

Outcomes: How IR35 Investigations Typically End

Despite the fear surrounding them, many IR35 investigations do not end with tribunal battles.

Common outcomes include:

• HMRC accepts the contractor’s position

• The enquiry is closed with no adjustment

• A partial settlement for specific periods

• HMRC withdraws due to insufficient evidence

Tribunals are the exception, not the rule.

That said, reaching a clean outcome usually requires:

• Clear evidence

• Consistent explanations

• Professional handling

Luck plays a role. Preparation plays a bigger one.

The Cost of an Investigation (Even When You’re Right)

This is the part many contractors underestimate.

Even if HMRC ultimately agrees with your status, investigations still cost money:

• Advisor fees

• Time away from work

• Stress and distraction

This is why IR35 insurance exists, not because contractors expect to lose, but because defending yourself isn’t free.

Common Contractor Mistakes During IR35 Investigations

A few recurring errors appear again and again:

• Responding without advice

• Treating HMRC as informal or friendly

• Over-explaining irrelevant details

• Letting clients answer inconsistently

• Assuming contracts alone will protect them

Most of these mistakes are human, not negligent. But they can weaken strong cases.

Investigations Under the Reformed IR35 Rules

Since responsibility shifted to clients in many cases, investigations have changed, but not disappeared.

HMRC may now:

• Review SDS decisions

• Assess whether reasonable care was taken

• Investigate fee-payers rather than contractors

However, contractors are still often involved, especially where working practices are questioned.

IR35 risk hasn’t vanished. It’s just moved.

Emotional Impact: The Part Nobody Talks About

Let’s be honest. IR35 investigations are stressful.

They create:

• Background anxiety

• Financial uncertainty

• Strain on client relationships

Even confident contractors can find themselves second-guessing past decisions.

Acknowledging this doesn’t weaken your position. It helps you approach the process calmly and strategically.

A More Useful Way to Think About IR35 Investigations

Instead of asking “Will HMRC investigate me?”, a better question is:

If they did, could I clearly and calmly explain how my business operates?

If the answer is yes, and you can evidence it, you’re in a far stronger position than many.