How to challenge a client’s IR35 determination

The rules for how to determine IR35 status aren’t changing, only the entity in charge of making the determination. Whoever makes the decision is expected to use reasonable care in making the determination, and judge each contract on its own merits.

As a result some end-hirers are placing a blanket inside IR35 status on all contractors, so that they firstly don’t have to deal with the responsibility of deciding a contractor’s status or have to pay for the tax implications, should they miss-identify.

So what can you do if your contract is determined as inside IR35? In this blog we explore just that, and give you the tools to challenge an incorrect status, with help from your SG accountant.

CEST – HMRC’s IR35 determination tool

Private sector clients will most likely be new to the concept of defining a contractor’s IR35 status, and as such many will use the only tool available to them. HMRC’s CEST (Check Employment Status Tool) allows clients to answer a number of questions concerning a contractor’s contract and working practices, and then in turn will reveal whether a contractor is inside or outside of IR35. The tool has come under fire, as it’s not 100% accurate and some HMRC investigations have even contradicted its own tool. Sadly for contractors if nothing changes between now and April 2021, this tool will likely be used to determine their IR35 status.

Challenging an IR35 decision

If you disagree with a client’s IR35 decision, you’re able to challenge it using the client-led disagreement process:

1. Request the ‘status determination sheet’; that each business is required to provide
2. Send it directly to your SG accountant with a copy of your latest contract. They will then carry out a review
3. You could also run your contract through the CEST tool yourself. Whilst we acknowledge that the tool is flawed, for many contractors it will still arrive at an outside IR35 decision
4. Present your evidence to your end-hirer / client, which will kick-off the ‘client-led disagreement’ process. HMRC have stated that they will stand by the decision made by CEST, so long as the answers given are factually correct. So for most clients, an outside IR35 decision should be enough to reassure them
5. At present there is no further guidance except that the end-hire/client will have 45 days to respond to your appeal

After this process regardless of your status outcome, it should be your final decision whether you decide to contract via your Limited Company (whilst paying the relevant taxes) or through an Umbrella company. We’d suggest talking to your end client about increasing your day rate, to cover any unsuspected losses.

Ongoing support from SG

As always your SG accountant is on hand to support you with all things IR35 related. Included in your monthly accounting package is unlimited IR35 advice from your accountant, free use of our Umbrella services should you need it, and support challenging client status determination. Simply get in touch with your personal accountant for further advice and support.

Note: All the information and advice in this blog post was correct at the time of writing.