Who Decides Who Is Covered By IR35?
If the IR35 rules are applicable, the client (meaning the hiring company or recruitment agency) must decide if a contractor is employed or self-employed for tax purposes. Previously, it was the contractor’s prerogative to decide. However, this is no longer the case in the private sector and will no longer be the case in the public sector after April 2020.
A client must take reasonable care when assessing the employment status of their contractors. If they fail to do so, the client could become liable for the contractor’s unpaid income tax or National Insurance contributions.
The client must tell a contractor what their determination decision is and the reasons for it. This must be outlined in a Status Determination Statement.
It is important to remember that even if a contractor is deemed to be an employee for tax purposes, he/she is not necessarily entitled to full employment rights.
Implications of the Determination
The IR35 rules change the way in which tax is collected. Therefore, if a contractor is deemed to be an employee for tax purposes, the client will deduct any income tax and NICs directly from their pay. If a contractor is considered self-employed, he/she is responsible for meeting their own tax obligations.
If a client decides a contractor is an employee, it raises each party’s tax liabilities. This can result in tension between the client and contractor, as each may want to off-set the additional cost. For instance, a client may request that a contractor accepts a lower wage. Alternatively, a contractor may want to negotiate a higher day rate.
HMRC IR35 Dispute Process
If a contractor disagrees with the result of a status determination, he/she has the right to pursue a dispute through the organisation’s status disagreement process.
If You Are A Contractor
If you are a contractor and you want to dispute the determination, you need to send the hiring company or recruitment agency a letter, explaining why you are challenging the decision. The client has 45 days to respond, starting from the date they receive your letter.
If You Are A Client
As the client, you must consider the contractor’s argument carefully. You can then –
- Change the determination, if you feel the original decision was wrong
- Uphold the determination and explain your reasons
If you fail to respond within 45 days, the hiring company becomes responsible for the contractor’s tax and National Insurance contributions.
If The Dispute Is Not Resolved
This dispute process is not always sufficient when it comes to resolving IR35 disputes. If the client upholds the status determination, the contractor may continue to disagree.
For legal advice regarding the off-payroll working rules (IR35), contact us at Altion Law. Our specialist lawyers can clarify your legal rights and liabilities, help you dispute a status determination decision, and assist your business in understanding the requirements and how they affect you.