How should a contractor challenge an IR35 determination? 

The arrival of IR35 reform in the private sector on 6th April will see the responsibility for determining IR35 status transfer from the contractor to the medium or large company engaging them. As a result, lots of contractors are wondering how they can mount an IR35 challenge. In other words, is there any way to successfully appeal an inaccurate or even non compliant IR35 determination?

As part of the Off-Payroll changes, which resemble ones rolled out in the public sector in 2017, whichever party handles payments to the contractor’s limited company (known as the fee-payer) must pay employers national insurance and deduct the appropriate tax and national insurance where the assignment is deemed to fall inside IR35 and pay this amount to HMRC.

Understandably, the introduction of the Off-Payroll rules has sparked concern among contractors, with some questioning whether their end client possesses the skills and expertise needed to make compliant IR35 determinations.

This simple guide, written by Parasol, explains the steps you can take when looking to overturn an IR35 decision made by your client.

How to appeal an IR35 determination

Let’s say your client has deemed your contract inside IR35. It’s a decision that you’re unhappy with and one that you believe is incorrect. Here’s what you should do, according to government guidance. 

1. Contact your client with the details of the IR35 determination that you disagree with.
2. Put forward your argument for working outside IR35, listing the specific reasons.
3. Make sure that you keep a record of all emails, letters and written correspondence.

The client must respond to your challenge within 45 days of receiving it. However, in this time, your original determination will stand.

When can you mount an IR35 challenge?

Up until you receive your final payment for the services provided to the client. But it goes without saying that if you disagree with your client’s IR35 determination, it’s in your own interests to act immediately. You’ll find information on the financial implications of working inside IR35.

What happens after you have appealed?

If your client agrees:

In an ideal world, your client will review your position (perhaps even reassess your IR35 status) and be open to reclassing your contract as outside IR35, assuming this is where it belongs. In this scenario, you’ll be given a new Status Determination Statement (SDS) from your client confirming the date upon which it is valid from.

If your client disagrees:

This is where things get a little more complicated. The resolution process is client-led, which means if they disagree with the case you’ve made, they are under no obligation to change your IR35 status. Unfortunately, there is no independent body to mediate this situation, which the government has faced criticism for.

However, that isn’t to say your IR35 challenge is dead in the water at this point – or that you should give up. Here are some tactics that may prove important in convincing your client to change their mind, whether from the beginning or further down the line:

Independent IR35 support

Having your contract reviewed by an expert will strengthen your case, giving it more credibility. As many of you will know, the IR35 rules are ambiguous, which is why approaching your client armed with the opinion of an objective specialist is more likely to make your client listen, in theory anyway.

Scrutinise your Status Determination Statement (SDS)

In addition to having your contract reviewed, make sure you examine the Status Determination Statement (SDS) you have been issued. Under the legislation, your client must provide you with an SDS (which is likely to be a document emailed to you). This will include the factors that have led to your IR35 determination.

If the reason for placing you inside IR35 seem inaccurate or your SDS is identical to one received by a fellow contractor working in a completely different role at the same company, you may have grounds to contest the decision – whether because the IR35 determination is simply incorrect or that the client has blanket-placed its contractors inside IR35, which is non-compliant.

Explore umbrella working

If you have exhausted these options to no avail, you may want to explore working through an umbrella company – an arrangement that hundreds of thousands of contractors opt for regardless of their client’s IR35 determination.

In response to IR35 reform, some businesses have made or will make it policy not to engage contractors through personal service companies going forward. Instead, many of these companies are looking to engage flexible workers via umbrella companies, given in this scenario the IR35 rules no longer apply.

Further reading

• You can read about the pros and cons of working via an umbrella company vs. your own limited company in this dedicated guide.
• Another useful guide – What is a Status Determination Statement (SDS)?
• Find out more about the advantages to umbrella working in this useful guide from Parasol.

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