Disputing an IR35 status determination

A contractor who thinks a client’s status determination statement is wrong must first use the client led disagreement process in section 61T of ITEPA 2003. The client has 45 days from receiving the representations to either confirm its decision with reasons or issue a new statement, and if it misses that deadline it becomes liable for the PAYE itself. If the client stands firm, the contractor’s remaining route is through their Self Assessment return after the tax year ends.

When does the disagreement process apply?

The process applies where a public authority or a medium or large client outside the public sector has issued a status determination statement (SDS) under the off payroll working rules in Chapter 10 of Part 2 of ITEPA 2003. The SDS states whether the client considers the worker would be an employee if engaged directly, with the reasons. Our guide to the IR35 and off payroll rules explains when these rules apply at all.

Only two parties can use the statutory process: the worker and the deemed employer. HMRC’s guidance at ESM10015 confirms that an agency in the chain that is not the deemed employer has no right to use it. Where the client is small and outside the public sector, there is no SDS from the client because the worker’s own company decides status, so the process does not arise.

How does a contractor raise a disagreement?

Section 61T(1) is triggered when the worker or the deemed employer “makes representations to the client that the conclusion contained in a status determination statement is incorrect”. There is no prescribed form. ESM10015A says disagreements can be made verbally or in writing, and HMRC’s compliance guidelines (GfC4, part 10) warn hiring managers that a conversation with a contractor may itself amount to a disagreement.

A disagreement needs reasons. HMRC’s guidance says that a bare statement such as “my status is wrong” does not oblige the client to consider it, and the client can stand by its SDS. A useful disagreement should:

• identify the SDS being disputed;
• explain which status indicators are wrong, such as control, substitution, financial risk or how the contractor fits into the organisation;
• attach supporting evidence, for example the contract, correspondence showing how work is actually directed, or evidence of a genuine right of substitution;
• where useful, include the contractor’s own result from HMRC’s CEST tool, answered accurately.

GOV.UK guidance for contractors adds that they should keep copies of records about disagreements. Our page on the employment status tests covers the case law the client should be applying.

How does the 45 day deadline work?

Under section 61T(2) the client must do one of two things:

1. give a statement that it has considered the representations and decided the SDS conclusion is correct, with the reasons for that decision; or
2. give a new SDS to the worker and the deemed employer with a different conclusion, stating the date from which the new conclusion applies and that the previous SDS is withdrawn.

Section 61T(3) sets the time limit: 45 days beginning with the date the client receives the representations. ESM10015 stresses this means 45 calendar days from receipt of the disagreement, not from the date the SDS was issued. HMRC’s GfC4 guidance gives an example of an organisation that wrongly told workers they had 45 days from its letter to “appeal”; there is no such cut off for the worker.

If the client misses the deadline, section 61T(3) makes the client, rather than the fee payer, liable for PAYE on payments from the end of the 45 day period until it responds. This applies whether or not the client took reasonable care in its original determination, subject to the fraudulent documents rules in sections 61V and 61WA.

What happens to tax while the dispute is open?

Nothing changes until the client decides. ESM10015 says that where the SDS concludes the rules apply, the deemed employer remains responsible for deducting tax and National Insurance throughout the disagreement process. Equally, an outside IR35 conclusion can be followed until the client decides otherwise.

If the client issues a new SDS saying the engagement was outside the rules from an earlier date, HMRC expects the deemed employer to correct the position through payroll, using the next Full Payment Submission or a corrective one with the right year to date figures, and to refund the worker. Simply deleting the worker from payroll does not correct HMRC’s records.

Is there a deadline for the contractor?

No fixed one. Representations can be made at any time and there is no cap on how many disagreements can be raised. However, section 61T only applies to representations made before the final chain payment for the engagement, so the client does not have to respond after the last payment. A repeat disagreement with no new reasons or evidence can be closed by referring to the earlier answer.

The process also works for changes during a contract. A contractor whose role has genuinely changed can raise a disagreement on that basis, and the client should establish the date from which any change took effect. GfC4 gives an example where a client agreed in December that status had changed from the start of September, and the agency refunded the PAYE deducted for September to November.

What if the client will not change its view?

The statutory process ends with the client’s reasoned response. There is no appeal to HMRC or the tribunal against the SDS itself during the tax year. ESM10015A says that if a worker contacts HMRC during the year, the request will be rejected and the worker directed back to the client’s process.

After the tax year ends, a worker who still believes they were taxed incorrectly can use their Self Assessment return. HMRC’s guidance sets out the steps:

1. tick the off payroll worker indicator on the employment page for the disputed engagement;
2. restate the disputed employment income as zero but leave the tax deducted as it is;
3. include the income as it would be taxed on the worker’s preferred basis, such as additional dividends;
4. write “OPW dispute” in the additional information box (box 19);
5. attach the SDS, the disagreement and the client’s reply, the worker’s own status view, which indicators are in dispute and any evidence.

The return will generate a refund request, and HMRC may open an enquiry, during which it may contact the client. National Insurance is reclaimed separately by writing to HMRC after the end of the tax year, with the National Insurance number, the tax year, the amounts paid and evidence such as a P60 or payslips. If HMRC refuses the refund, the worker can challenge that decision about their tax bill through the normal review and appeal routes, explained in our page on HMRC reviews and the tax tribunal.

The practical alternatives are commercial: renegotiating the contract and working practices so a fresh SDS is justified, agreeing a rate that reflects the deductions, or declining the engagement.

How does this look in practice?

Illustration only. Priya’s company is engaged by a large retailer. The SDS issued on 1 March says she is inside IR35. On 20 March she emails the hiring manager explaining that she provides her own specialist equipment, has already sent a substitute twice and is not managed day to day, attaching the substitution correspondence. The retailer must reply by 3 May, the 45th day beginning with 20 March. The agency keeps deducting PAYE in the meantime. If the retailer replies on 25 April confirming its view with reasons, the process ends and Priya’s only remaining route is her Self Assessment return after 5 April the following year. If the retailer does not reply until 30 May, it is liable for PAYE on payments made from 4 May until it responds.

What mistakes do contractors and clients make?

• Disagreeing without reasons. The client is entitled to stand by its SDS.
• Going straight to HMRC. In year requests are sent back to the client process.
• Counting 45 days from the SDS. The clock starts when the client receives the representations.
• Clients ignoring informal objections. A spoken objection can be a valid disagreement and starts the clock.
• Agencies trying to dispute. An agency that is not the deemed employer has no statutory right.
• Waiting too long. Once the final chain payment is made, the client need not respond.

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Related Accountapedia entries

• Status determination statements under IR35
• Who is the fee payer under off payroll rules
• Offsetting tax already paid in IR35 cases
• Small clients and the off payroll rules
• The deemed employment payment calculation

Related cover: Employers' liability insurance is a legal requirement for most employers. Ask for a quote or call 01795 841 310.

Sources

• legislation.gov.uk: Act 2003 c. 1, section 61T
• GOV.UK: Manual page ESM10015
• GOV.UK: www.gov.uk
• GOV.UK: Client led disagreement process part 10
• GOV.UK: Off payroll working for intermediaries and contractors providing servi
• GOV.UK: Tax appeals
• GOV.UK: Understanding off payroll working ir35

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.