With IR35 reform hitting the private sector from April 2020 onwards, the biggest question on every contractor’s mind is ‘what do I do if I disagree with the IR35 status applied to my contract?’
With the official Status Determination Statement and dispute process defined, but useless, where do contractors turn if they have received an unfair IR35 status decision?
(18/03/2020) Please Note: IR35 Private Sector Reform has now been delayed to April 2021 due to the impact of the COVID-19 pandemic.
Why Is The Status Determination And Dispute Process Useless?
When IR35 reform hit the public sector back in 2017 one of the first, and expected, issues that arose was that some engaging bodies – who perhaps didn’t/don’t understand IR35 – panicked and labelled all contractors as caught by IR35. Having all contractors’ statuses as ‘inside IR35’ means two things for a company:
1) no tedious admin is necessary to assess each contractor, and
2) no risk of an independent investigation finding contractors labelled as ‘outside IR35’ who are in-fact ‘inside IR35’. IR35 status is a potential danger-zone for many organisations who have a poor understanding of it – they’ve never had to really know what it is in the past, it was the contractor’s problem.
Public sector engaging bodies didn’t even practice consistency with this unfair process, for example most IT contractors working for the NHS were outside IR35, but all locum medical professionals were inside IR35 – resulting in somewhat of a workforce crisis affecting NHS waiting times. And when this IR35 reform was introduced, there was no way a contractor could dispute their status.
On to the process itself. So in 2019, included in the draft IR35 legislation which would see this important change being applied to the private sector, the government also introduced a somewhat useless dispute process. This process sees the engaging company (whether that be the company the contractor will work for or an agency) can be required to provide the contractor with their IR35 status and a Status Determination Statement (SDS).
Should a contractor disagree with the statement and IR35 decision, they may challenge the engaging company – who in turn must provide either their evidence for upholding the IR35 determination or issue a new SDS within 45 days. There’s also a strange caveat that says if the response from the engaging company is not received within 45 days the engaging company becomes liable for the contractor’s tax.
Now, upon receiving the final decision for the IR35 status determination, if a contractor still disagrees – and even if the engaging company is simply 100% wrong – the contractor can do… well, nothing actually. The contractor now has nowhere to turn. There is no formalised external process in place to check that engaging companies are making correct fair decisions. The engaging company could simply reply with ‘because we said so’ and the contractor is left to live with the decision.
Therefore, this process to try and fix the issue of contractors being incorrectly labelled as inside or outside IR35 is, in a word, useless. All the government have done here is create some administrative work for engaging companies. Brilliant…
You Know What Else Is Pretty Useless?
A little tool the government provided called CEST (Check Employment Status for Tax), that’s what. The CEST tool has come under heavy criticism for consistently returning the wrong answer when it comes to determining an individual’s IR35 status, yet this is the tool the government have recommended to engaging companies to do just that. Not only does it frequently provide an incorrect answer, 15% of the time it provides no answer at all. No answer to a closed question, the engaging company needs inside or outside – there is no middle answer!
So this is where you, as an experienced contractor, can help – if you have the opportunity to speak to the decision maker, provide as much detail as possible. They’re probably not as experienced with IR35 as you are, and all they have is an online tool which has been found to be incorrect around 37% of the time. Don’t hate the player – hate the game!
The government, however, have promised a new and improved CEST tool is coming soon.
So let’s move on to proactive steps a contractor actually can take to try to prevent an incorrect IR35 decision by an engaging company.
What Useful Steps Can Contractors Take To Ensure The Correct IR35 Status Is Applied?
First thing’s first: make sure you actually work outside IR35 if that’s the decision you’re looking for (or vice versa if you’d like to be caught by IR35 – but we’re assuming most reading this are trying to keep themselves outside IR35).
If you’re working outside IR35 your PSC (ie: you) should be setting your own hours, working location, using your own equipment, paying for your own travel. You won’t be attending the usual staff meetings, parties or events.
|Inside IR35||Outside IR35|
|Are you paid on the basis of time spent?||No||Yes|
|Are you given set hours to work?||Yes||No|
|Are you allowed to supply a substitute to do your work if ill or on holiday?||No||Yes|
|Do you attend staff parties or meetings?||Yes||No|
|Is the engaging company telling you how to carry out the work?||Yes||No|
|Do you supply your own equipment?||No||Yes|
Job ads for contractors are now routinely stating ‘this work is inside/outside IR35’, however that is not legally binding and the engaging company may change their minds when it comes to engaging your PSC.
But you can demand an SDS for the work before you sign a contract with an engaging company, and our advice is to do so, that way you can be sure of the IR35 status before you begin work. It’s also an ideal time to discuss the SDS before the formal, and useless, dispute process gets started. You have more leverage at this point and may come out with the result you wanted. If you’re unhappy with their determination then you can choose to look for work elsewhere.
If you’re in the middle of a contract when these changes come into play then, currently, you’re only option is to dispute the SDS and try to provide as much evidence for your outside IR35 status as possible. Industry leaders are challenging the government on the dispute process, so we do hope that it won’t be so useless in the long term.
Another avenue open to contractors is to look for contracts with ‘small companies’ – as currently the IR35 determination is not expected to be issued by a ‘small’ engaging company. However we’re left to argue over what is deemed small enough to be ‘small’.
Remember, if something sounds too good to be true, it probably is. For example, a business offering IR35 contract reviews that guarantee you’ll get the status you want, or a service to keep you outside IR35… No third party can have any influence over the engaging company’s decision, so don’t waste your time or money on these schemes.
If You Are Told You’re Inside IR35 – Fight For Your Employee Benefits
So your engaging company have said that 100% you’re inside IR35 and they’re not changing their minds… OK fine, not the outcome you were hoping for, but remember to look after number one first. Ask them to pay the employers NI and – demand those employee benefits.
If you’re inside IR35 here are some of the things you should be entitled to:
- Pension contributions
- Off-site travel expenses
- Benefit schemes
- Company stationery, IT equipment, uniform, etc…
- Sick pay
- Free tea, coffee, food provided for meetings, team nights out, Alison from accounting’s birthday cake…
- Basically everything offered to a typical employee at that engaging company
These are all things that your PSC might have covered in the past – make sure you’re no longer covering them – you’re being treated as a regular ‘employee’ now.
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