Contractors’ Questions: Can a client charge me for having to test my IR35 status?

Contractor’s Question: I’m working on a contract basis via my own limited company at one of the UK’s aerospace and defence firms. We have been instructed to undertake an ‘IR35 Self-Assessment’ through a third-party company, for which we – the contractors  -- are to be charged £160!

Is this practice wide spread or is it part of HMRC legislation or guidance? Or is it unreasonable as a point of principal for PSCs to be asked to carry out the IR35 status assessment, when the responsibility and liability is ultimately on the client?

Expert’s Answer: To the best of our knowledge there is no “IR35 Self-Assessment”. If the client is large or medium-sized, then the legislative requirement is that they conduct a review of the role -- and its performance, and from that produce a Status Determination Statement.

This SDS is required to have been completed with due care and attention and to be made available to all parties in the chain. The status that is determined, i.e. inside or outside IR35, then sets out who is required to make tax deductions at source (if inside), or not (if outside).

It is unusual for the contractor to be asked to conduct their own assessment. It is a legal requirement that the end-client conducts such a test and makes it known as required.

It is sometimes the case that a contractor will pay for their own test, if this comes to a different answer to the end-client’s. Typically, the end-client says ‘inside IR35’ and the private test says the opposite. In that event, there is no requirement upon the end-client to pay for the test.

However, there is strictly nothing to stop an end-client charging the contractor for the SDS. Although it is a legal obligation of the end-client, the law is silent in terms of who could, should and does pay for the determination.

That said, the assumption in the legislation is that the end-client will prepare the SDS and distribute it. There is no guiding principle as to which party is responsible for paying for that work. There is perhaps an underlying principle that as the SDS is the responsibility of the end-client, then this is where cost should be borne. However, there is no bar on the end-client seeking reimbursement of such cost.

The expert was Graham Webber, tax director at WTT Consulting.

Thursday 27th Feb 2020
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Written by Graham Webber

Following nearly 4 decades working in various tax disciplines, Graham co-founded WTT to offer his deep experience and understanding of complex tax structures to those embroiled in tax enquiries. More recently Graham was awarded best forum adviser and best forum personality in the ContractorUK Awards.
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