Under the "new" IR35 rules, known as off-payroll working rules, the client is responsible for determining if the contractor, engaged by via an intermediary, should be taxed as an employee or not. This outcome is communicated to the contractor by way of a status determination statement (SDS). Under this new legislation the contractor (or deemed employer in a contractual chain) can make representation to the client at any time before the final payment under the engagement is made to the intermediary challenging the status determination.

The client can use the HMT CEST tool to make an assessment for each individual contractor. Other commercial options are available, the client is not obliged to use the HMRC tool.

Regardless of how the off-payroll working assessment is completed, the output is only as good as the information provided, the contractor and client may have different opinions regarding the answers given to reach the outcome, there may also be genuine grey areas which do not easily fit into the options provided causing a challenge of the status determination. 

How to challenge a status determination

A challenge to a status determination can be made informally, so long as it includes sufficient information to consider the issues raised then clock starts ticking for the client to respond. You have 45 days to do so.

What a client needs to do

It is necessary to consider the representations made by the worker and it may mean re-visiting the assessment to determine if the SDS is correct; or that the status has changed. If the latter, then the worker will have to be notified which should include the date from which the new status applies and the withdrawal of the previous SDS.

Successful challenges will more likely cause the worker to be found to be outside the off-payroll working rules, and therefore corrections will be necessary via the client's payroll.

Agree to disagree

If the contractor still disagrees with the status determination and that they have been taxed incorrectly in relation to the engagement, then any further challenges should be made by the contractor via self-assessment processes with HMRC. There is no further opportunity to appeal to the client.

What can I do to avoid a status determination challenge?

A range of factors are considered which will indicate whether the contractor should be treated as employed or self-employed. There can be shades of grey which can cause difficulty for the client when making the initial SDS, even before a subsequent challenge by a contractor.

It is important that the actual position is considered not that which is noted in the contract and therefore it is important to speak to the colleagues working with the contractor.

We can provide advice in relation to the position of each contractor and the terms of their engagement to help you assess the risk and what options you have in engaging the individual contactor.

We also have our IR35 / off-payroll working hub which provides further insight in navigating this area of employment and tax law.