How to challenge your client’s IR35 status determination

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How to challenge your client’s IR35 status determination
How to challenge your client’s IR35 status determination

From April this year, the way in which both private and public contract IR35 statuses are determined will be exactly the same. The rules for how they’re determined won’t change, but the person in charge of that decision will.

In this blog we re-examine what’s changing, and how to go about challenging a client / end-hirer’s decision if you feel your status has been incorrectly determined.

It’s up to the end-hirer / client

It’s now their responsibility to determine a contractor’s status, regardless of whether it’s a public or private contract. They must demonstrate that reasonable care has been taken when determining the status, and should they get it wrong the financial and tax implications will lie with them.

As a result of this, it’s predicted that some end-hirers / clients may place blanket status determinations on all contractors, so as to remove themselves from any potential risk.

So what can you do if your status has been misidentified, or you’ve been subjected to a blanket status determination?

CEST – HMRC’s tool for determining your IR35 status

HMRC have created their own tool CEST (Check Employment Status Tool) for helping end-hirers / clients to determine a contractor’s IR35 status. As many private sector clients will be new to the concept of determining a status, they will likely use this tool for their final decision.

The tool works by asking a number of questions about the contractor’s contract and working practices, and will then reveal the contractor’s status. It has come under fire as some have questioned its accuracy, with tests completed even by HMRC having revealed false determinations. However, so long as the answers given when using the tool are 100% accurate HMRC has said that they will stand by whatever decision it makes so it worth trying the tool for yourself.

How to challenge an IR35 determination

Should you disagree with a client / end-hirer’s IR35 status determination, you are able to challenge that decision by using the client-led disagreement process:

  1. Request the ‘status determination sheet’ from your end-hirer / client
  2. Send it to your chosen specialist contractor accountant with a copy of your contract. Your accountant will then carry out a review, if they offer IR35 services like Taxevo does
  3. We advise that you run your contract through the CEST tool also, to see what decision it gives to you. Whilst the tool is flawed, it is believed that for the majority of contractors the tool will arrive at an ‘outside’ decision
  4. Present your accountant’s findings and the CEST tool results to your end-hirer / client, which will begin the ‘client led disagreement’ process. We believe that as HMRC has said they will stand by the CEST tool’s decision, and presumably by you arriving at an ‘outside’ status determination by using the tool, this should be enough to satisfy your client and HMRC of your ‘outside’ status
  5. The end-hirer / client then has 45 days to respond

Once they’ve done so, if you’re still to be found ‘inside’ it’s then up to you whether to continue on with the contract via your Limited Company (and pay the relevant taxes) or under an Umbrella company. To ensure you make the right decision speak to your specialist contractor accountant, who may advise raising your day rate or introduce other things to compensate for any loss of earnings due to an ‘inside’ IR35 result.

Speak to an expert accountant

IR35 is confusing, and just when you think you have a grasp of what’s going on HMRC decide to move the goal posts. Luckily for Limited Company contractors the team of specialist accountants here at Taxevo have been playing the game for a while, and know every move when it comes to IR35 and what that means for contractors.

Get in touch today to find out how we can support you with all things IR35 related, and guide you through any client-led disagreements, should the need arise.