IR35: How do HMRC deal with the review when the end client has been taken over or bought out?

We are currently dealing with a number of cases where the Personal Service Company's (PSC) end client has been either taken over or bought out by a third party.

In these cases HMRC are attempting to approach the new owners to try and obtain information from them regarding our clients' day to day working practices. We are challenging HMRC and questioning the legality of this approach since, in our opinion, HMRC are seeking to obtain information regarding a period of time prior to the current owner’s legal ownership of the business. As well as the concerns about the legality of the contact HMRC are attempting, and the delays we are experiencing as a result, there are also the obvious concerns as to the likelihood of HMRC obtaining information from the appropriate personnel who are capable of providing first-hand knowledge of the situation.  

In our view, HMRC should be looking to bring matters to a close on the basis of the information provided by the PSC. HMRC should only seek information from a third party where HMRC suspects that the information provided is incomplete and/or incorrect. We accept that HMRC have the power to seek information from the third party (end client) after notifying the taxpayer. We have repeatedly expressed the view to HMRC that this approach is unnecessary and believe that without proper justification, it is wrong for them to delay matters or ask for information, which may damage our clients' commercial reputation. Is this approach disproportionate to the tax at risk? HMRC are expected to minimise the disruption of any type of enquiry and this is certainly not the case here.

Our concern is that the person or persons who would be aware of the day to day working practices may have left the company when the buyout took place, in our opinion, where the end client is under new ownership, it may not be the most productive course of action and will only lead to further delays. HMRC have commented, in response to our request to bring matters to a close, that there is no official guidance in relation to making contact with the end client.  

In a case we are currently dealing with, where the end client contact is no longer with the new company, we have received a letter from HMRC which states:

“I have received a technical steer regarding the progress of this review and must now seek to look at the contractual arrangements more robustly. 

Therefore we will be seeking to hold meetings with the named contact within xxxxxx (the agency) to discuss your client’s contractual arrangements. This was not previously a standard practice as the day to day working practices take precedence and any questions would be asked during the end client meeting. 

We are currently trying to arrange these meetings and thank you for your continued patience during this review.

I will endeavour to provide you with a further update by 06 July 2018”


There is a real danger that by approaching the agency, the business’ new owners and/or their employees, this may result in HMRC obtaining information that is not factually correct and contradicts what our client had provided. It will then be incumbent on our client to show that the third party information was incorrect, which would be time consuming, and expensive.

It is important to keep up the pressure, but frustratingly there is no legislative option of applying for a closure notice, because of the fact that IR35 reviews stem from an employer compliance review, under S97 ITEPA 2003.

We have a proven track record of successfully resolving disputes and have built up a wealth of experience in this specialist area.  

Jacqui Mann and Nigel Nordone are experienced tax professionals, as well as being ex-HMRC inspectors. Both specialise in PAYE and IR35/status matters and as such, they are uniquely placed to assist you and your clients with a view to minimising risk, and providing peace of mind.

For further information on how to protect your clients or how we can assist you with issues surrounding tax status, please contact Nigel Nordone or Jacqueline Mann on 0345 223 2727.
The information provided on this site is of a general tax nature and may not apply to any particular set of facts or under all circumstances. It should not be construed as tax advice and does not constitute an engagement of Abbey Tax. Tax laws are constantly changing. The information on this site was accurate at the time of posting and we make every effort to keep it current, however we are not responsible for outdated material.