1. Know Whether the Rules Apply to Your Engagement
Before challenging a status, you must first be sure that IR35 (off-payroll working rules) applies.
Who must determine status
- Public sector clients — always must determine status and issue a Status Determination Statement (SDS).
- Private sector medium/large clients (per Companies Act size tests) — must determine status and issue SDS.
- Small private sector clients — do not have to apply the off-payroll rules; contractors then self-determine status.
A company is “small” if it meets any two of these:
- Turnover ≤ £15m
- Balance sheet ≤ £7.5m
- Average employees ≤ 50
Note: due to transitional timing and accounting year effects, many companies may not be treated as small for IR35 until April 2027 or later.
2. Check You Have a Valid SDS
If your client is required to make a status decision, they must provide a Status Determination Statement (SDS) in writing with:
- Inside/outside IR35 status
- The reasoning behind the decision
- Reference to the relevant contract or working practices
- Date of determination and effective period
If you haven’t received a proper SDS, you should request one in writing before challenging status.
3. Start with the Client-Led Disagreement Process (CDP)
What the law says
If you disagree with your client’s status determination, you must raise a disagreement with the client — this is your first formal opportunity to challenge it.
How to do it
✅ Write to your client clearly stating you disagree with their IR35 decision.
✅ Explain your reasons based on the employment status indicators — e.g.:
- Control — you set your hours and how the work gets done
- Substitution — you can send a substitute
- Mutuality of Obligation — no ongoing obligation for work
- Financial risk / in-business status
Keep copies of all correspondence.
What the client must do
Under current HMRC rules:
- They must respond in writing within 45 calendar days of receiving your disagreement.
- They must either:
- Confirm the original status with reasons, or
- Revise the status and issue a new SDS with updated reasoning.
- While the disagreement is being considered, the existing tax treatment stays in force.
If they fail to respond in 45 days, the client becomes the deemed employer for PAYE/NICs by default.
4. After the Client Response
After the client has made their response:
If they change the status
Great, the new SDS will apply, and your tax treatment should be updated accordingly.
If they uphold the original determination
You still have options; it doesn’t end here.
5. Consider Your Next Steps
Self-Assessment / HMRC Enquiry
After completing the client disagreement process:
- You can file your Self Assessment tax return in the usual way
- If you think you have overpaid tax under IR35, you can claim a repayment and include your position on status
- HMRC may accept this or may open a compliance enquiry to review your evidence
Note: HMRC’s review isn’t a formal arbitration of the SDS — they are reviewing your tax position and the evidence you provide.
6. Professional Support & Evidence
If HMRC opens a compliance check, you’ll need:
✔ Contracts and working documentation
✔ Details of behavioural and financial indicators
✔ Communications and SDSs
✔ Expert advisor support (recommended)
Professional contractors sometimes ask IR35 specialists to document their evidence and status arguments — that can strengthen your case.
7. Tax Tribunal (Formal Appeal)
If HMRC still insists your contract was inside IR35 and denies a repayment:
- You can appeal to the First-tier Tax Tribunal
- This is a formal legal process — legal representation is common
- A strong case with clear evidence improves chances of success
HMRC’s decisions in compliance enquiries can be challenged through the tribunal process, just like other tax decisions.
Additional Practical Points
Company Size Matters From 2026+
From 6 April 2026, small business thresholds for IR35 change. Many private clients may become exempt from off-payroll rules and thus will not issue SDSs. In those cases, you as contractor may self-assess status under the older IR35 tests.
However, due to transitional timing, many clients may not be treated as “small” for IR35 purposes until tax year 2027/28.
Summary
- Confirm whether IR35 applies (is client medium/large?)
- Ensure you have a valid SDS
- Raise a written disagreement with the client
- Client responds within 45 days
- If you disagree still, pursue Self Assessment and HMRC compliance review
- If needed, appeal via Tax Tribunal
Final Tips
- Always keep written records at every stage
- Base your arguments on actual working practices not just contract wording
- Consider professional IR35 advice early — it often saves frustration later
