Some clients will be aware of the loaded question on the P35 employers annual return, “Are you a service company”.  Many feel a “yes” is a invitation for a IR35 inspection.

The legality and purpose of the question was always dubious, and when P35s were done on paper it was often worked around by simply not answering the question – and there was never any negative feedback / form rejection or similar from HMRC.

However all P35s now have to be filed online, and you have to give a answer.

A tax barrister, Keith Gordon, has challenged HMRC on this and guess what?  They’ve admitted the question has no basis at law and you can answer no with out fear of penalty or incurring HMRCs wrath.

A good result by Keith, but, of course, it shouldn’t be necessary!