If you think your IR35 status has been wrongly assessed, do you have to accept the situation, or can you challenge it? If you decide to challenge your assessment, what’s the best process to follow and how can you proceed without damaging the relationship with your end client? Chris James, Head of Accounting here at JSA and Chairman of the FCSA, explains.
Who is responsible for IR35 assessment?
Under current legislation, if you work through your own personal service company (PSC) then responsibility for determining your IR35 status rests with you. If you work with us at JSA, you will have had the option to undergo a detailed Contractor Assessment at the outset, and this will have helped you determine your IR35 status. (If your working practices change or you switch contracts it may be that your IR35 status is affected, in which case you should contact us to be re-assessed.)
Next year, however, with the introduction of the off-payroll reforms, this situation is going to change.
Under the new rules, responsibility for IR35 assessment will rest with end engagers; the organisations you ultimately carry out work for.
We, along with many industry analysts, expect some end engagers will not want to take the risk of making a wrong assessment, which means they could decide to treat some or all contractors as if they are ‘inside’ IR35. This was certainly the case when similar rules were introduced in the public sector a couple of years ago.
If this does happen – and there are many indicators that say it will – and you are treated as if ‘inside’ IR35, then the impact on your take-home pay could be significant. You may, therefore, wish to understand how you might challenge your assessment.
Challenging an IR35 assessment
At the moment, because end clients are not involved in the IR35 assessment process, there is no formal dispute system in place. Contractors have to challenge their status (or, rather, over-payment of tax) via HMRC.
With the new off-payroll rules, HMRC has indicated it expects end clients to put in place a Client-led Status Disagreement Process. This process would allow you to understand the basis of your Assessment and therefore build a case to challenge your status.
The difficulty you may face is that your end client will be able to make the final decision, so you may have limited influence over the final outcome.
Plus, end clients will be able to take up to 45 days to produce their paperwork, in which time you could already be financially disadvantaged.
We, along with other industry representatives, have challenged this approach but we will now have to wait and see how it pans out in reality.
What you can do now
We recommend that you talk to your recruitment agency and end engager about how they plan to respond to the new off-payroll rules. Whilst they may not be able to give you any definitive answer – many are still working out their response, and the legislation is still making its way through the Parliamentary process – this will help you understand how you may be affected.
If you think you will be wrongly classified as ‘inside’ IR35, you’ll need to take expert advice. Our team of specialist contractor accountants will be able to consider your particular circumstances and advise you accordingly.
A properly managed and well-informed challenge to IR35 assessment should not damage your relationship with your end client.