What to do if a contractor lodges an IR35 status determination appeal?

It’s now the responsibility of most businesses, charities and public sector organisations to assess and declare the employment status of their contractors.

However, new off-payroll working rules introduced in 2017 and 2021 now impose a requirement on employers to offer contractors the right to appeal against an IR35 status determination if they think your assessment is wrong.

In this article, we look at how to handle an appeal from a contractor for a new status determination.

To speak to IR35 determination specialists, please call CoComply on +44 (0) 203 051 9792, email [email protected] or fill out the form below.

Who is this article for?

This article is for public sector organisations and qualifying private sector companies that outsource work to independent contractors who trade through their own limited company.

In most cases, you are now legally responsible for determining IR35 status under the new off-payroll rules.

Status determination statement

End clients are organisations and businesses that benefit from services provided by limited company contractors.

If you are an end client, you now have a statutory duty to create a status determination statement (SDS) for each contractor you work with.

Determining employment status

Public and private sector clients, when conducting IR35 determination tests, must take into account a number of factors.

There are many IR35 status determination questions you have to answer in your assessment related to working practices, the right of substitution, mutuality of obligation, and control.

Informing your contractor and others in the labour supply chain

Prior to starting work, you must provide a contractor with your initial determination of their employment status.

You must also supply others involved in the labour supply chain with a copy of your original determination, for example, a fee payer like a recruitment agency or an umbrella company (sometimes called a deemed employer).

Creating a client-led disagreement process

Contractors are more likely to ask for a reassessment of their IR35 determination if you determine that they’re inside IR35.

But that’s not the only reason.

Why might a contractor dispute their status determination?

Contactors (and, if applicable, their recruitment agencies and umbrella companies) can see why you came to your judgement on their IR35 status because you must include your reasons in your status determination statement.

Contactors may argue that you have not taken reasonable care if you have used:

a blanket statement to cover your contingent workforce
role-based assessments for contractors in the same roles
HRMC’s CEST tool
a status determination template you have downloaded from the internet

Blanket and role-based assessments are likely to fail the reasonable care test. The CEST tool is very unreliable and has been buggy since 2019. And many businesses make mistakes on templates they’ve downloaded as well as lacking the required depth of knowledge in employment law and IR35 case law to make a legally defensible assessment.

Contractors may also ask for a reassessment if your statement contains what they consider as factual inaccuracies.

How can contractors challenge your status determinations?

In this first instance, they can either speak to you about it or send you a letter/email.

If they write to you, they should set out in detail each argument that backs up their assertion.

What records should we keep?

You should keep copies of all correspondence between you and your contractor regarding the appeal for your records. You should do this with all contractors on IR35-related issues any way regardless of whether they’re appealing as this is good housekeeping.

How do we come up with a new determination?

When reassessing the nature of your engagement with a contractor, apply reasonable care and due diligence.

If you agree with your contractor’s point of view, you should issue a new status determination statement and distribute it to your contractor and others in the labour supply chain.

If you believe your original assessment was correct, you don’t have to do anything other than informing your contractor. There is no IR35 mediation service to which a contractor could take you to. You are under no obligation whatsoever to change your assessment.

How long does a contractor have to appeal?

Contractors can appeal an employment status determination up until the day of their final payment.

Limited company contractors and IR35 appeals

We understand that, in an ideal world, both employers and contractors want to keep their arrangements outside IR35. The difference in cost to both being inside IR35 is significant.

It’s absolutely possible to attract the most talented UK and international contractors by keeping working arrangements outside IR35. It just needs careful management. That’s what we do so please get in touch.