Can I challenge my client’s IR35 status determination?

This has resulted in many difficult conversations taking place up and down the country. Clients – many unaware of these newfound responsibilities – have either taken risk-averse blanket decisions and moved all engagements onto the payroll, or struggled to come to terms with the complexity of the rules when making their determinations.

Contractors have unfortunately found themselves in limbo, with many having a much stronger idea of how the rules work due to their previous responsibilities for assessing IR35 status.

So what can be done? Can you challenge your client’s IR35 status determination? Yes – and you wouldn’t be alone in challenging it either. We know from IPSE research that over half of contractors who disagreed with their status determination went on to challenge it.

The success rate of these challenges, however, has fallen compared to the immediate aftermath of the rules being introduced (just 4% were successfully changed in 2023 compared to 17% in 2021).

Nevertheless, it’s still an important tool in the arsenal of contractors that can make clients reconsider their IR35 stance.

How do you go about challenging your client’s IR35 status determination?

A good place to start would be to review your client’s IR35 determination. If you believe that the client has come to the wrong conclusion or failed to take adequate care in their own determination process, you can then challenge it.

The first port of call is to request the client’s Status Determination Statement (SDS). Using this, you may be able to ascertain how the client came to their determination and spot any incongruities with the way you actually work.

The next step is to try HMRC’s CEST tool. Running your own working practices and contract through the CEST tool could significantly aid your case if you can arrive at a different outcome. This is especially true if you can see that your client has used the CEST tool to make their decision. Indeed, we know that almost two-fifths of clients (37%) have adopted the CEST tool to determine engagements in the past year.

So, this could definitely be worth a try, especially as HMRC has previously said it will stand by the decisions delivered by CEST – but only if they agree that the information you entered is correct. But this doesn’t detract from CEST’s overall flaws, namely its assumption that ‘Mutuality of Obligation’ – one of the key tests to determine IR35 status – automatically applies to contractor engagements. More on that here.

If you are an IPSE member, you can also utilise IPSE’s discounted contract review service to assess whether your contract has any indication of whether it should fall inside or outside of IR35 legislation.

At this stage, it would be advisable to present any findings that you may have found to your client. This will then trigger the beginning of what is referred to in the off-payroll working legislation as the ‘client-led status disagreement process.’

The legislation sets out that the client then has a duty to respond within 45 days of the day that you present your findings.

Reforming the appeal process

Calls to alter and improve the appeals process for contractors have been around prior to the 2021 reforms were even introduced. We at IPSE have previously called on HMRC to introduce an independent arbitration service to issue binding opinions on cases where the parties could not agree. HMRC even consulted on this exact idea when they were drafting the reforms but alas…

The Public Accounts Committee have also called on HMRC to introduce a ‘fast and independent process for contractors to resolves disputes over status determinations.’

For more on potential reform to the appeals process and the exact wording of HMRC’s response to the PAC report, IPSE’s Andy Chamberlain set out the case here.

IPSE will continue to press the Treasury on the need for a speedier and more accurate appeals process as part of our continuing conversations with the Employment Status and Intermediaries Forum and in our meetings with politicians and officials.