IR35 & Off-Payroll Dispute Solicitors

An HMRC IR35 investigation can result in years of unpaid income tax and National Insurance being collected from the contractor's personal service company — or from the engager, under the off-payroll working rules. A solicitor will challenge the status determination and manage the dispute.

IR35 (the "Intermediaries Legislation") taxes contractors who work through their own personal service company (PSC) as if they were employees of the engager — where the working arrangements are such that, in the absence of the PSC, the contractor would be a deemed employee. The off-payroll working rules (Chapter 10 ITEPA 2003), introduced for the public sector in 2017 and extended to medium and large private sector engagers from April 2021, shift the obligation to assess IR35 status to the engager — not the contractor. An incorrect status determination — whether by the contractor or the engager — results in PAYE and NIC liability. A solicitor will challenge the status determination and manage the dispute with HMRC.

HMRC IR35 status investigations Off-payroll worker status disputes CEST challenges & SDS appeals Free initial consultation

IR35 & Off-Payroll Disputes — Key Issues

IR35 disputes — the legal tests for employment status, the off-payroll rules, and how disputes with HMRC are resolved.

IR35 status assessments are among the most contested areas of HMRC's enforcement activity. The legal tests for deemed employment are complex and fact-specific — a solicitor will identify the arguments that support outside-IR35 status and pursue them compellingly through the appeal process.

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The IR35 status tests — control, substitution, and mutuality of obligation

IR35 status is assessed by applying the employment status tests — primarily: control (whether the engager has the right to direct how, where, and when the work is done); substitution (whether the contractor has a genuine right to send a substitute in their place); and mutuality of obligation (whether the engager is obliged to offer work and the contractor is obliged to accept it). No single factor is determinative — the test is the overall picture of the working arrangements. A solicitor will analyse each factor in detail against the contract terms and the actual working arrangements, identify the strongest arguments for outside-IR35 status, and present them to HMRC and the First-tier Tribunal.

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HMRC IR35 investigations — the PSC as the primary target

Under the original IR35 rules (Chapter 8 ITEPA 2003 — still applicable to small private sector engagers), the contractor's personal service company is responsible for the IR35 assessment and for paying any PAYE and NIC that arises if the arrangement is within IR35. HMRC's IR35 investigation team opens enquiries into PSC corporation tax returns, challenges the IR35 status assessment, raises PAYE and NIC assessments on the PSC, and charges interest and penalties. A solicitor will manage the IR35 investigation from the first enquiry notice — challenging HMRC's status determination, presenting the evidence of the actual working arrangements, and pursuing the appeal to the First-tier Tribunal where HMRC's position is incorrect.

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Off-payroll working rules — engager compliance and status determination statements

For medium and large private sector engagers (and all public sector engagers), the off-payroll working rules require the engager to assess the IR35 status of each worker engaged through a PSC and to issue a Status Determination Statement (SDS). Where the SDS determines "inside IR35", the engager (or the fee-payer in the supply chain) must deduct PAYE and NIC from the contractor's fee. A contractor who disagrees with the SDS can raise a formal dispute under the Client-Led Disagreement Process — requiring the engager to review the determination. A solicitor will advise on the disagreement process, draft the formal challenge to the SDS, and manage the dispute with the engager and, if necessary, HMRC.

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CEST — HMRC's Check Employment Status for Tax tool

HMRC's Check Employment Status for Tax (CEST) tool produces a status determination for a specific set of factual inputs. HMRC has stated that it will stand behind CEST results — but only where accurate information is entered. The CEST tool has been criticised for failing to consider mutuality of obligation (a key employment status test) and for producing "inside IR35" results in cases where the courts have found the contractor to be outside IR35. A solicitor will assess whether the CEST result correctly reflects the actual working arrangements, identify where the CEST inputs were inaccurate or incomplete, and present the correct status assessment — supported by a detailed analysis of the relevant employment status case law — to HMRC and the tribunal.

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IR35 PAYE assessments — challenging the amount of the liability

Where HMRC determines that an engagement is within IR35, it raises a PAYE assessment on the PSC for the income tax and NIC not deducted from the deemed employment payment. The deemed employment payment is calculated as the gross fee income less the 5% expenses allowance (repealed from April 2023 for off-payroll cases), salary already paid, employer's NIC, and pension contributions. The assessment can cover multiple years — going back up to 6 years (20 years for fraud). A solicitor will challenge both the status determination (arguing the engagement is outside IR35) and, if the status determination is upheld, the calculation of the deemed employment payment — ensuring the assessment does not exceed the actual liability.

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IR35 at the First-tier Tax Tribunal — how appeals are decided

IR35 status appeals at the First-tier Tribunal are decided on the balance of probabilities — the tribunal must determine what the actual working arrangements were and whether, applying those arrangements to the employment status tests, the contractor is a deemed employee. The contract terms are relevant but not decisive — where the actual working arrangements differ from the contract, the tribunal gives weight to the actual arrangements. A solicitor will prepare the case for the tribunal — witness statements from the contractor and the engager (or the contractor's clients), documentary evidence of the actual working arrangements, and a detailed analysis of the status tests applied to the specific facts. IR35 appeals that are properly prepared and presented are more likely to succeed than those pursued without legal representation.

How It Works

IR35 status is a legal question — not an administrative one. The answer depends on detailed legal analysis of the working arrangements against the employment status tests. A solicitor will identify the correct answer and defend it against HMRC's challenge.

A solicitor will analyse the working arrangements, identify the arguments that support outside-IR35 status, manage the HMRC investigation, and represent the contractor or engager at the First-tier Tax Tribunal where HMRC's status determination is challenged.

Submit Your Request
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Describe the IR35 dispute

Tell us about the engagement — the nature of the work, the contract terms, the actual working arrangements, and the HMRC challenge or SDS issued.

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Solicitor assesses the status and advises on the challenge

An IR35 specialist analyses the working arrangements against the employment status tests, advises on the prospects of a successful challenge, and manages the dispute with HMRC.

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Free initial consultation

You receive clear IR35 status advice and the most effective approach to challenging HMRC's determination — at no cost and no obligation.

Free Initial Consultation

An HMRC IR35 determination accepted without challenge can result in years of PAYE and NIC being assessed against the PSC. A solicitor will identify whether it can be overturned — and pursue the challenge if it can.

Get specialist IR35 dispute advice — and find out whether the HMRC status determination or SDS can be successfully challenged.

Challenge My IR35 Determination

Common Questions

IR35 and off-payroll working — what people ask us.

HMRC is saying my PSC is inside IR35. What does this mean in practice?

Where HMRC determines that an engagement is within IR35, it raises a PAYE and NIC assessment on the PSC for the amount of income tax and National Insurance that should have been deducted from the fee income treated as a deemed employment payment. The PSC is liable for both the employer's NIC (13.8%) and the employee's NIC on the deemed payment — both are assessed on the PSC, not the contractor personally. The PAYE assessment can cover multiple years and can be substantial. A solicitor will challenge the status determination — presenting the legal arguments that the engagement is outside IR35 — and manage the HMRC investigation and appeal process.

My engager has issued a Status Determination Statement saying I am inside IR35. What can I do?

Where a medium or large private sector engager (or a public sector engager) issues an SDS determining inside IR35, the contractor can raise a formal dispute under the Client-Led Disagreement Process. The dispute must be raised with the engager — not HMRC — within the period specified by the engager (typically 45 days). The engager must consider the representations and issue a new SDS within 45 days confirming or revising the original determination. A solicitor will draft the formal dispute, present the strongest arguments for outside-IR35 status, and advise on whether the engager's revised determination (or confirmation) can be challenged further — including directly with HMRC where the engager refuses to revise.

Does my right of substitution in the contract mean I am outside IR35?

A genuine right of substitution — the right to send a qualified substitute in your place without the engager's consent (or at most with a reasonable veto based on skill and qualification) — is a strong indicator of outside-IR35 status. However, a contractual right of substitution that is never exercised in practice, or that is subject to the engager's unfettered approval, carries less weight. HMRC and the tribunals look at whether the right is genuine — whether the contractor could realistically exercise it, whether the engager would accept a substitute, and whether the business reason for the substitution clause is commercial or purely tax-driven. A solicitor will assess whether the substitution clause is genuine and enforceable and how much weight it is likely to carry in the status assessment.

Can HMRC go back and investigate historical IR35 compliance?

Yes — HMRC can open an enquiry into the PSC's corporation tax or PAYE returns for historical years, subject to the applicable time limits — up to 6 years for careless behaviour and 20 years for deliberate non-compliance. Under the original Chapter 8 rules (applicable to small private sector engagers), historical compliance is assessed against the position at the time — HMRC cannot apply the 2021 off-payroll working rules retrospectively to periods before they applied. A solicitor will ensure that HMRC's investigation is limited to the correct legal framework for each tax year under review and that the applicable time limits are not exceeded.

What happens if my engager is found to have made an incorrect inside-IR35 determination?

Under the off-payroll working rules, if the engager (or fee-payer) makes an incorrect SDS — determining inside IR35 where the engagement should be outside — the contractor is over-taxed through PAYE deductions. The contractor cannot reclaim the over-deducted PAYE from HMRC directly — reclaim is possible through the contractor's own self-assessment return. Where the engager made an incorrect inside-IR35 determination without reasonable care, the contractor may have a claim against the engager for the additional tax and NIC cost. A solicitor will advise on the position and pursue the claim against the engager where the incorrect SDS was not based on reasonable care.

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