If you receive a Status Determination Statement (SDS) from an end client that places your engagement inside IR35, and you believe this determination is incorrect, you have the legal right to challenge it. Understanding the process and preparing a strong case can lead to a revised determination.
Your statutory right to challenge
Under the off-payroll working rules, contractors have a statutory right to make representations against an inside IR35 determination. The end client is legally obliged to consider your challenge and respond within 45 days. This is not an optional courtesy; it is a legal requirement.
Step 1: Review the SDS carefully
Read the determination and the reasoning provided. Identify specific points where the client's assessment does not match the reality of your working arrangement. Common areas of disagreement include the characterisation of substitution rights, the level of control exercised by the client, and the nature of mutuality of obligation in the engagement.
Step 2: Gather evidence
Compile evidence that supports your position. This might include examples of when you exercised substitution or could have done so, evidence that you determine your own working methods and hours, documentation showing project-based deliverables rather than time-based attendance, proof that you use your own equipment, and evidence of other clients or business activities.
Step 3: Submit your challenge in writing
Write a clear, professional letter or email to the client's IR35 decision-maker. Address each point in the SDS that you disagree with, referencing your evidence. Avoid emotional language and focus on factual discrepancies between the determination and your actual working practices.
Step 4: Wait for the response
The client has 45 days to respond. They must either issue a revised determination or confirm the original decision with detailed reasons for rejecting your challenge. If they fail to respond within 45 days, liability for any incorrect tax deductions can shift from the fee-payer to the client, which is a strong incentive for them to take the process seriously.
If the determination stands
If the client maintains their inside IR35 determination after your challenge, you have several options: accept the determination and negotiate a higher rate, seek an independent IR35 review to support a further challenge, choose not to take the contract, or in extreme cases, consider whether the determination was made with reasonable care, as a negligent determination could shift tax liability to the client.