Contractors' Questions: Will client terminate me if I push on IR35 status?

Contractor’s Question: This article is helpful for indicating how I might defend a HMRC investigation into services delivered to my public client via my contract before April 6th.

But if I were to fight back now, to push the client to conform with the new rules, wouldn’t they just terminate my contract? Or would I be protected if they behaved unreasonably?

Expert’s Answer: Unfortunately, the client will always be able to terminate your contract subject to the contractual notice period. If they did not, you could consider breach of contract. However, terminating in accordance with the contract won’t normally allow you any legal recourse.

If you believe that they will terminate your contract then your decision must be pragmatic. If the contract is essential to your livelihood, then you should continue working within the determined scope until you find your own solution (which may mean finding a new contract).

Accepting the IR35 status determined by the client does not entirely deny you your rights to pursue this matter further, provided you stay within your limited company. It is worth cautioning you though -- if you switch to working through an umbrella company or agency payroll, you will lose all chance of any recovery of tax-deducted.

So, what do you do if you believe the client will terminate the contract if you pushed them on your IR35 status? Sadly, your options become limited because there is no straightforward, formal appeal process. As originally suggested in the article you cite, our belief is that you should place yourself in a position of strength. Take and fully document the result you get from the ESS/ IR35 digital tool; if the outcome is that you fall outside IR35 then approach your agency for support by submitting a request to respond to your test result. The client is required by law to respond within 31 days to your letter.

If the client fails to respond within the timeframe, the client becomes the ‘fee-payer’ and your agency is required to pay you gross because it is no longer their legal obligation (or right) to deduct tax. But then you are at odds with your agency, so you’d be in a Catch 22!

If your contract is direct with the public sector body and they fail to respond within the prescribed time limit, you hit a brick wall because the public sector body is already the fee-payer. You are left with the legal recourse that any deductions from pay are unlawful, but we are then full circle and faced with termination.

In circumstances where the contract will be terminated, and failing the goodwill of all parties to comply with the law, then you have little choice but to take a pragmatic approach and move on in your own time.

The expert was Duncan Strike, a director of contractor accountants Intouch Accounting.