With IR35 legislation set to be implemented in the private sector in just a few months, it can be easy to get caught up in determinations. But while you’re racing to ensure that every contractor relationship is correctly assessed, have you stopped to think about the consequences if you get it wrong? The contractor community is understandably concerned about off-payroll reforms and, for many, an inside IR35 determination could have a significant impact on their earnings. So, what can a contractor do if they think your decision is wrong? And what are the consequences for your organisation if a contractor successfully challenges your determination?
How can a contractor dispute a status determination?
Under the most recent HMRC guidelines on IR35, end clients should produce a Status Determination Statement to contractors when a decision on IR35 status is made. This document should contain a rationale for the determination. The Status Determination Statement has been designed to provide further clarity to contractors around decision making and reduce the number of status challenges made. However, a contractor still has the right to dispute your decision. HMRC have advised that this will be achieved through a Client-Led Status Disagreement Process. This means that the burden for reviewing this dispute will fall on the end client rather than HMRC.
What happens if a dispute is made?
When a contractor disputes a status determination, the end client will have 45 days to investigate and provide the paperwork that led them to this decision. At the end of this investigation, they will have to reverse their initial determination or uphold their findings and provide relevant evidence. The information provided by HMRC on this process has been sparse to date. Currently, there is no mechanism by which a status decision can be escalated to HMRC.
How much additional work will the Client-Led Status Disagreement Process create?
It’s difficult to say what resources the investigation and dispute process will require. However, for organisations with high numbers of contractors, they could be significant. Business leaders have been highly critical of the process, which creates a sizable administrative burden. While contractors feel it is unfair that they have no right of arbitration or escalation to HMRC.
Can a challenge be escalated to HMRC?
At present, no escalation process has been confirmed. Although further IR35 advice from the government may change this position in the future.
How can we ensure we get our determinations right?
We believe that expert advice and support are essential for organisations who do not wish to be hit by a significant number of status disputes. We have partnered with IR35 experts Brookson Legal to provide a complete off-payroll solution, offering support on status determinations, expert advice on best practice, and indemnity protection against HMRC challenges. Get in touch to find out how we can support your organisation.