Disputing determinations and larger end clients: Ask Andy Answers

It seems like only last month we heard the Chancellor delay the IR35 reforms for another year, but that was way back in March and now those reforms are just over three months away. If your preparations for the new legislation are throwing up question after question, it might be helpful if you could put them to an expert with decades of experience working with IR35.

Kingsbridge’s Head of Tax, Andy Vessey is just such an expert, having successfully defended hundreds of contractors in HMRC enquiries over the years. In this blog, we put your questions to him.

If a contractor is assessed as inside IR35 but they disagree – but then client disagreement process still states they are inside IR35 – a) how can a contractor further dispute this (legally/direct with HMRC etc) and, if they were found to have been assessed incorrectly, b) who would be liable to pay back the taxes they’d paid ? Would they go direct to HMRC or to the client?

Realistically, outside of the client-led dispute process, the only option a contractor has to try and overturn a decision is what could be referred to as a rather nuclear option . You could invite HMRC to enquire against you as you believe your status does not match that given.

This option will be fairly unpalatable for most contractors because it could end up being expensive in legal costs and also would likely end up being a bit of a headache to manage, but it is within your rights to do so.

If the employer decides on an outside IR35 determination for a contractor, is the contractor then ‘safe’?

After April 2021, assuming you are working for a company with some form of UK link and assuming the end client is a medium/large company (as per the Companies Act), it is not the contractor’s responsibility to make an IR35 determination, nor is it their liability should the determination end up incorrect.

I would check to ensure that the client in question satisfies these criteria, but if they do, it is not your responsibility to determine status or carry the liability, but that does not mean the client/agency can’t introduce terms to try and mitigate liability in the form of insurance if they wish.

Some of my clients have been talking about renting equipment to contractors (albeit increasing the day rate to cover the additional cost). The clients want contractors to use their equipment as they know it is calibrated correctly, and feel that hiring it to contractors will show financial risk. What are your thoughts on this?

If the client is renting the equipment to contractors, this will evidence some level of financial risk (which is good from an IR35 perspective). If, however, the client is increasing the day-rate to reflect this rental and HMRC catch wind of that, it will nullify any benefit of making the contractor rent equipment.

As a general rule, a contractor having to use client equipment for a genuinely good reason (health and safety, data protection, etc.) will be defendable. Using client equipment for convenience sake, however, will not be.

In relation to calibration – the question to be raised here would be could the contractor not get their tools or equipment calibrated (and bear the cost for it) and provide certification to prove calibration? If so, that’s probably a better way to go to evidence financial risk.

We are noticing a number of the larger main end clients in the transportation and infrastructure markets are simply stating that as of April 2021, all contingent workers will only be engaged as PAYE (no PSCs). Reasons for this are largely based on lack of education, perceived risk aversion, or cost cutting. Does this skirt their requirement to perform SDSs on all roles and if so, where does this stand in terms of IR35 legislation?

This is a reflection of the banks back in April 2020. If they are simply stating no more contractors or that they’ll only engage PAYE contractors, that is their prerogative. If they say they are doing so because of IR35, then that could come back to cause them problems.

Ultimately, the decision to engage contractors or not is a business one, so it is entirely fair to say ‘no’ to contractors, albeit potentially a bad move as some of the best workers out there are, in fact, contractors.

This means they are limiting their pool of talent unnecessarily, instead of taking a few reasonable steps to allow them to continue contracting.

How to Ask Andy…

If you have a question for Andy, you can put it to him using our online form and he’ll do his best to get you an answer on our blog.

In the meantime, it’s time to ramp up your IR35 preparations, so take a look at our IR35 Protect insurance for flexible, comprehensive cover. The Premium package also gives you unlimited access to the Kingsbridge Status Tool, so you can rest assured that your status determination is accurate.