How do you challenge your IR35 status?

With over 76% of our clients contracting in the private sector (see our full stats in our Integro Accounting contractor survey) how will this impact the contractor market? What changes should you be aware of? Is there a way to challenge your IR35 status if unhappy? Our easy to read FAQ answers those burning IR35 questions.

What is a ‘blanket’ decision?

A blanket decision is when the fee payer has decided that for their organisation/company all contracts will automatically fall inside or outside of IR35 regardless. For ease they may decide that they only want to bring in service providers using an umbrella company, to avoid having to understand and carry out IR35 contract reviews, as the onus is on the umbrella company to pay tax and NI.

Many fee payers may decide on this decision purely out of fear, lack of understanding on the legislation or that they purely do not have the resources to implement this review stage when sourcing contractors. HMRC have stated that blanketed approaches must be justified and that the fee payer is completely liable for the IR35 status i.e. they take on the risk. Sound like scaremongering?

If there are legitimate working practices and clauses in place, then there is no reason for the fee payer to deem the contract inside IR35.

The fee payer will also be required to provide a ‘Status Determination Statement’ (SDC) which details the reason this decision has been made – this is a bid from HMRC to increase transparency and aid accuracy.

Can you challenge the IR35 decisions?

If you feel the fee payer is using a ‘blanketed’ approach, and/or is incorrect in their decision, you have every right to appeal. Contractors can challenge the result through the ‘Client-Led Disagreement Process.’ All contracts should be reviewed on an individual basis by the fee payer and based solely on the clauses and working practices.

What is the IR35 ‘contractor clauses’?

All limited companies should be treated as a service provider. As the contractor, you are an extension of your company. So, the fee payer should always factor the following clauses when reviewing a contract:

• Substitute: can you as a limited company decide who carries out the assignment? You should always be able to send a substitute with equal skill sets to complete the assignment/project.
• Obligation: is the fee payer always required to provide your company assignments? If there are periods within the contract where you are not required to work, there should be no obligation for the fee payer to provide you with work and therefore pay for your services.
• Control: are you under direct supervision from the fee payer or not? You are a service provider not a direct employee and should therefore not directly be managed by the fee payer. The above contract clauses should align with your working practices.

What are the working practices relating to IR35?

HMRC can always challenge a contractor and their working practices. Although the clauses in a contract help define your IR35 status, your working practices must also reflect this. They should work in parallel to show how you work outside IR35.

Contractors can often refer to themselves as a ‘me’ and ‘I’ when as a limited company/PSC they should be referring to themselves as ‘my company’ and ‘the business’. Remember the following points when next speaking to the fee payer – these discussions can provide more weight and substance to your status as an outside IR35 contractor:

• Have you been provided a project plan? As a service provider, your company is bought in to complete an assignment within a certain time period. The project brief and deliverables should all be confirmed with the fee payer. A job spec is for an employee.
• Have you been approached for a business meeting? The fee payer can absolute be head hunted and approached for a specific job, but interviews are for employees. You as the service provider hold business meetings to showcase your skill sets.
• Can you send someone if you are sick, or unavailable? Substitute – one of the most popular words used around the term IR35. You as a company should be able to provide a suitable substitute if need be. The fee payer should not be shocked or demand you at the office. This is your right as a service provider.
• Are you required to be at an office or on site all the time? 75% of Integro clients surveyed stated that ‘Flexibility’ was the number one reason they became a contractor. Limited company contractors should be able to determine where and when they work. Naturally, if the project requires you to work with staff on site or in an office in order to complete the tasks, that is different – ultimately the time management is determined by you, the contractor
• Are you taking advantage of employee benefits? To ensure there is no misunderstanding, employee benefits should not be provided to you as a limited company contractor. Quite simply put, employees will benefit from parking spaces, subsidised canteen, office equipment, clothing etc. not contractors.
• Do you have to report under someone’s direct supervision? Off course the client is paying for your services so there will be an element of reporting, but ultimately you should not be under someone’s direct supervision and control.

How can I safeguard my IR35 status?

All the above working practices and clauses will lend itself to supporting your statement as a contractor working outside IR35. Some of the FAQ’s asked by clients are as follows when it comes to safeguarding your status and what to do:

Should I get an IR35 contract review?

Yes. Although ultimately the contract will be determined by the fee payer, a contract will be HMRC’s first starting point for all enquires. Having a contract reviewed will ensure that the contract fully represents how a contractor provides their services, this will ensure that in the event of an enquiry neither the working practices nor the contractual terms are contradicted by the other (limiting HMRCs ability to question which is correct).