How to challenge a client’s IR35 determination

In 2017 when changes to the Intermediaries Legislation (IR35) were rolled out in the public sector, meaning end-clients were responsible for determining the IR35 status of limited company contractors, some employers took the decision to place all contractors inside IR35. While others refused to work with contractors entirely.
This resulted in chaos – projects were delayed or put on hold. Subsequently, companies were forced to rethink their decision.

It’s our opinion that we’ll see many private sector companies take a similar approach by placing all contractors inside IR35 – indeed, we have already seen evidence of this. If your end-client uses this approach it’s within your rights to challenge their decision using the client-disagreement process.

For a comprehensive overview of IR35, see our ‘IR35 survival guide’ that details the IR35 determination process and steps to take following it.

CEST – HMRC’s IR35 determination tool
Determining the IR35 status of limited company contractors is new to the majority of private sector companies, and such the majority will use HMRC’s CEST (Check Employment Status for Tax) tool. By inputting information in response to a series of questions the tool will provide an answer to whether the contract is ‘inside’ or ‘outside’ of IR35. However, the tool isn’t 100% accurate and some HMRC investigations have contradicted their own tool. Yet unless something changes soon this is the tool that your end-client will likely use to determine your IR35 status.

Challenging an IR35 decision

You can challenge a client’s determination using the client-led disagreement process

1. Request the ‘Status Determination Sheet’ that each business is required to provide
2. If you have a contractor accountant that offers this service send it to them with a copy of your latest contract for a review
3. Alternatively, run your details through the CEST tool yourself. Whilst we acknowledge that HMRC’s CEST tool is flawed, for many contractors it will still arrive at an outside of IR35 decision
4. Provide your evidence to your end-client and the ‘client-led disagreement’ process should begin. HMRC have said that they will stand by the decision of the CEST tool provided the answers given are factually correct. So, for many, an outside of IR35 decision should be enough to reassure the end-client
5. There is no further guidance yet on a formal process, however, the end client will have 45 days to respond to your appeal

Following this process, if your end-client stands by their decision you can choose to proceed with the contract via your limited company or an umbrella company, ideally at an increased day rate to cover your losses. Or, if you decide it’s not financially viable, you may have to walk away and find another contract.

Whether you’re new to contracting or are a seasoned contractor, getting to grips with IR35 is essential. Our ‘IR35 survival guide’ is packed with information, including what IR35 is, how it may affect you and your options if you are placed inside IR35. Click here to get your copy.
Alternatively, if you’d like to speak to one of our Directors to see how our services could benefit you, call us on 01962 867550 or send us a message and we’ll arrange a convenient time to chat.