The IR35 private sector reforms are due to come in on 6 April 2021. If after a status determination statement (SDS), the contractor is found to be employed for tax purposes, then they will have to pay tax and national insurance contributions (NICS) as if they were an ordinary employee.
Contractors will likely not challenge an SDS where they are found to be self-employed. However, they will challenge the decision when they are found to be a deemed worker or employee as they will pay more tax and NICS.
Contactors will be aggrieved as they will taxed as an employee but not receive any of the other employee benefits such as a permanent contract. The IR35 rules requires the client to have a dispute resolution method that will allow the contractor to challenge their SDS.
What is the dispute resolution method?
The dispute resolution method is client led. Indeed, there is no tribunal or court a contractor can bring their SDS challenge too. The IR35 rules simply require the client to have a dispute resolution method for the SDS to be challenged. Once a challenge or appeal has been received then the end user must review the SDS.
If the SDS has not changed then the client must give a written statement to the contractor confirming that they have reviewed the decision and it is correct. That statement must set out the reasons why that decision is correct.
If on review the client has incorrectly made an error on the SDS. Then the client must give a new SDS confirming there is a new conclusion from the previous SDS. That SDS must state the date from which they consider the conclusion in the new SDS became correct and when the previous SDS was withdrawn.
The client should take all SDS challenges seriously. The contractor can contact HMRC direct and ask them to be treated as self-employed. HMRC may open an IR35 enquiry and the SDS correspondence will likely be sent to HMRC , for further details on an IR35 enquiry please see IR35 enquiry by HM Revenue and Customs - GOV.UK .
IR35 is complex and legal advice should be taken prior to the SDS being made. Please do get in contact with us if you would like more information on IR35. You can give us a call on 0118 958 5321 or email us at contact@clarkslegal.com
Read our article on How to prepare for IR35 tax rules this April