Fighting a public body's IR35 decision: a review

‘Right of appeal?! What right of appeal?’ That is clearly and unfortunately the message that some ContractorUK readers got from our answer to a Contractor’s Question last Friday.

What we were saying, and what bears repeating, is that the draft legislation contains no appeals process to the public sector body, writes Graham Fisher, CEO of Orange Genie.

It has always been the case (and will continue to be the case) that HMRC decisions can be challenged and appealed within 31 days of being made. However in the scenario in play, it isn’t HMRC making the decision. It is likely to be the public sector body.

'No provision'

The draft legislation (as published currently), makes no provision for an appeal against the public sector body’s IR35 determination. This doesn’t mean, of course, that a contractor or agency cannot question it. The issue is -- question away; but to what end?

When we think about an appeal, we are picturing a contractor disagreeing with the public sector body’s IR35 status decision. Whether there are set procedures to allow an appeal or not, let’s consider the issues in that contractor doing so.

The draft legislation contains a 31-day rule instructing public sector bodies to supply their IR35 status decision and reasons if requested to do so. In our opinion, this has no practical use other than as a transition measure for those contractors currently in assignments that run over into the next tax year and the new rules. If they have not received an assessment the fee-payer would use the 31-day rule to request it. In the meantime, the fee-payer would carry out a deemed salary calculation and pay the contractor’s company net until the assessment arrives. I don’t believe any agency will accept the risk of the tax liability by paying the contractor’s company gross.   

'The contractor's view'

For new assignments, the public sector body will carry out the assessment, set the pay rate and approach their supply chain to find a contractor. Let’s look at this from the contractor’s view with him or her eyeing an – “interesting assignment, inside IR35, at x pounds per day”.

It’s unlikely the contractor is going to say ‘I don’t like the assessment; I will appeal it before taking the assignment.’ More likely, the contractor will say ‘I don’t like the pay rate can I squeeze a higher day rate to compensate for the IR35-caught assessment?’ My point is that few contractors would be willing to accept a contract where they don’t know what they are likely to earn (i.e. how much tax they’re going to pay).

In the new world, the public sector body and the agency will need to provide the IR35 assessment with the job spec at the time the role is being advertised. We are firmly of the view that new assignments will be advertised with IR35 status pre-determined, and the contractor won’t have an opportunity to appeal, especially if he or she has accepted the role.

On 9th January, we met with the HMRC team implementing the off-payroll rules to provide them with feedback on the draft legislation and guidance notes. We raised a number of issues that we felt needed clarification, including the subject of appeal. Pleasingly, they were very responsive and proactively addressed a number of problems in the draft documentation.

'Duty of care'

HMRC has suggested that the next legislative draft will introduce duties to the public sector body; a ‘duty of care’ and a duty to supply the assessment directly to the fee-payer. This is a fundamental advance that would overcome a number of concerns about the supply of accurate data and responsibility. While not providing a structure by which contractors can appeal this duty, if added, it would mean that the contractor would have some assurance that assessments are made under a legislative obligation. If in the future HMRC were to challenge an ‘outside’ IR35 assessment made by a public sector body, the contractor would have a defence, as would the fee-payer that they had relied on the public sector body’s opinion and, importantly, they would have a right of recourse to sue for any losses.

Until then, contractors and their advisers will keep running into the same problem -- that we must all ‘wait and see’ what HMRC finally decides; legislatively. And I can bring ContractorUK readers some good news on that front – the HMRC implementation team said last week that they would be looking to incorporate an appeals procedure into the next draft.

'Appeals procedure'

In practical terms though, I don't see a contractor wanting to get involved or indeed having the opportunity to appeal an assessment before starting a new assignment, as mentioned above. It only makes sense for the contractor to appeal to the public sector body if they have already started the assignment; maybe working practices have changed mid-assignment, or if the working practices turn out to be not as outlined in the assignment details. Adding an appeals process into the legislation (with a duty of care) would 'force' the public sector body to undertake a further assessment rather than ignore, delay or fire.

Truth is; this legislation is far from ready, impractical in many areas, and incredibly complex. We’re still talking to public sector bodies who are unaware of the legislation and are completely unprepared to undertake any form of IR35 assessment, despite it all being less than 70 days away.


We believe implementation should be delayed because nobody is ready and the longer we discuss, argue and speculate about getting the processes right, the less time we have to prepare for software, systems and process implementations.  The appeals process is but another example of where the HMRC policy team has not thought through the implications and left the implementation team to pick through the mess. Worse still, I don't believe anybody at HMRC has tried to look at these changes from the contractor's point of view. Will they do so before finalising the legislation?  

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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