How to Challenge Your IR35 Status
A Contractor’s Guide
This guide walks you through each stage of the process
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Your Client Decides your contract falls Inside IR35
If your client has determined that your contract falls inside IR35 and you believe that’s incorrect, there are steps you can take to challenge that decision. While the process can be complex—and at times frustrating—it is possible to dispute and potentially overturn an inaccurate IR35 status.
This guide walks you through each stage of the process, from the Client-led Disagreement Process (CDP) to a formal dispute with HMRC, and even escalation to a tax tribunal, if necessary.
1. Start with the Client-Led Disagreement Process (CDP)
Under Chapter 10 of ITEPA 2003 (the off-payroll working rules), if you're working through a Personal Service Company (PSC) and are deemed inside IR35, your first port of call is to challenge the determination directly with the client via the statutory Client-led Disagreement Process.
Here's what to do:
- Contact your client in writing, stating clearly that you disagree with the IR35 determination.
- Outline your reasons, including specific details about your working practices and why they align with “outside IR35” status.
- Retain written records of all communication (emails, letters, etc.).
What happens next:
- Your client is legally obliged to respond within 45 days, confirming either that:
- The determination stands, or
- It is revised, with clear reasoning provided.
Note: If you're not operating through a PSC (e.g., you're a sole trader like Jo Livingstone’s case with the NHS), the CDP doesn’t technically apply—but if your client follows it anyway, it may still work in your favour.
2. If the Client Rejects Your Challenge
If your client sticks with their original determination after 45 days, their obligation ends.
At this point, your options include:
- Accepting the decision, or
- Negotiating a change to your working practices to better align with outside IR35 criteria, or
- Ending the engagement and seeking other opportunities.
But if you're still being taxed as if you are "inside IR35", and you strongly disagree, there’s another route.
3. Escalate to HMRC via Self-Assessment
Once the client-led process is exhausted, you may choose to challenge the IR35 determination directly with HMRC through your self-assessment tax return.
How this works:
- File your tax return and clearly declare the income that was taxed under IR35 rules.
- State that you are disputing the status, and make a concise argument for why your engagement should be considered outside IR35.
Make sure your argument includes:
- Control: You operate independently, without close supervision.
- Substitution: You have (and use) the right to substitute another qualified individual to do the work.
- Mutuality of obligation (MoO): There’s no obligation for ongoing work from either side.
- Financial risk: You bear business expenses and invoice independently.
- In-business indicators: Multiple clients, business insurance, advertising, website, etc.
Supporting documentation is crucial: contracts, working practice descriptions, email correspondence, and invoices can all help build your case.
4. HMRC Compliance Enquiry
HMRC might accept your self-assessment and refund overpaid taxes. More commonly, they’ll initiate a compliance check.
During the enquiry:
- Be prepared to justify your status thoroughly.
- Present detailed evidence of your working practices.
- Consider engaging a contractor status specialist (e.g. Bauer & Cottrell) to help guide you.
These professionals understand HMRC’s approach and can help present your case in the most compelling way.
5. Internal Review and Alternative Dispute Resolution (ADR)
If HMRC concludes that you were correctly taxed under IR35, you can:
A. Request an Internal Review
- This is done by an independent officer within HMRC.
- It's your chance to provide additional evidence and possibly professional support to reinforce your case.
B. Try Alternative Dispute Resolution (ADR)
- Aimed at resolving the issue before going to court.
- More effective if your dispute is procedural or evidential, rather than purely based on case law interpretation.
6. Appeal to the First-tier Tax Tribunal (FTT)
If all else fails, your final option is to appeal to the First-tier Tax Tribunal—an independent legal forum for tax disputes.
At this stage, you’ll need:
- A strong, well-documented case.
- Clear, consistent evidence.
- Likely, legal representation or expert advocacy.
While tribunals are formal, they are designed to be accessible to taxpayers. Many contractors have successfully overturned IR35 determinations at this level, but preparation is key.
Other Considerations
Check your SDS (Status Determination Statement)
Make sure it includes specific reasoning for your IR35 classification. If it looks generic or templated, or seems misapplied to your actual working arrangement, you may have additional grounds to challenge it.
Explore umbrella working
If challenging the status isn’t practical—or your client won’t engage contractors via PSCs—you may consider operating via an umbrella company. This avoids IR35 entirely but comes with its own pros and cons.
Final Thoughts: Persistence Pays Off
Challenging an IR35 determination isn’t quick or easy.
But if you genuinely believe your contract and working practices fall outside IR35, there is a defined pathway to make your case.
- Start with the CDP
- Escalate to HMRC if necessary
- Back your claims with strong evidence
- Engage specialist support when needed
- Don’t be afraid to pursue it to tribunal
It’s not for the faint-hearted—but it’s your right to push back on a determination that you believe is wrong.