How to challenge a client’s IR35 determination

Whether you’re a seasoned contractor or you’re just starting out, no doubt you’ll have a varying level of understanding when it comes to IR35. In April 2021 the rules surrounding private contract’s IR35 statuses will be changing, and will be in line with how public contracts are currently determined. For more detailed and in depth information on this, you can read our guide: IR35 in the Private Sector: Your guide for April 2021.

As a result of the new legislation, contractors may see their end-hirers placing blanket ‘inside IR35’ status determinations on all contractors, so as to avoid having to pay the tax implications they may find themselves liable for, should they incorrectly determine a contractor’s status.

But where does this leave contractors and what can you do about it? In this blog we look at just that, and help you understand what can be done to push back on your client’s decision.

CEST – HMRC’s IR35 determination tool

HMRC’s CEST (Check Employment Status Tool) allows clients to answer a series of questions surrounding a contractor’s working practices and contract, and based on the responses given will ultimately decide a contractors IR35 status. The tool has been the subject of criticism though, as it’s been proven to not be 100% reliable and even some HMRC investigations have shown that the tool has contradicted itself. Unfortunately for contractors should nothing change between now and April 2021, this tool will most certainly be used to determine every contractor’s IR35 status.

How to challenge an IR35 decision

Should you feel the incorrect status has been decided on your contract and working practices, you’re able to challenge it using the client-led disagreement process:

  1. Request the ‘status determination sheet’ from the client. They must complete one for each contractor.
  2. Send it directly to your Aardvark accountant with a copy of your latest contract. They will carry out a review.
  3. We also encourage you to run your own contract through CEST to see what outcome it gives you. Whilst we acknowledge the tool is flawed, for most contractors it’ll still arrived at an ‘outside’ IR35 decision.
  4. Present your evidence from your Aardvark accountant and your findings to your end-hirer / client. This will begin the ‘client-led disagreement’ process. HMRC have said that they will stand by any decision made by the CEST tool, so long as the answers given were 100% factually accurate. So for most clients, an ‘outside IR35’ decision should be adequate enough to reassure them.
  5. There is no further guidance at present, except that the end-hirer / client has 45 days to respond to the appeal.

Regardless of what the final decision is, it’s up to you whether you decide to take on the contract via your Limited Company (whilst paying the associated taxes) or through an Umbrella company. You could possibly speak to your client and discuss increasing your day rate, to substitute any losses.

Ongoing support from Aardvark Accounting

Your Aardvark accountant is always on hand, offering expert support and guidance with all IR35 related matters. Use of our Umbrella company is included free of charge in your monthly fee, and we’ll swap you over from Limited to Umbrella and back again whenever your contract requires. Simply get in touch with your personal accountant to find out more today, or to ask any questions relating to IR35 and your personal circumstances.