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Markel Tax

01 Dec 2020

What are the requirements for the disagreement process?

The ’client-led status disagreement‘ process for the Off Payroll working legislation (IR35).

Another question we are often asked is: “What are the requirements for the disagreement process?”  The short answer: no specific requirements.  The long answer requires a detailed explanation of the process(!)

The Off Payroll working legislation does not provide a prescriptive step-by-step process of what end clients must implement. But rather that they must have a mechanism in place to deal with any disagreements from contractors, or deemed employers (i.e. agencies where a ‘caught’ decision is rendered) in respect of the decision the end client has provided in the Status Determination Statement (SDS).

The legislation does impose certain minimum requirements upon the end-client to:

  • Consider the representations made to it

  • Respond within 45 days of being advised of a challenge to the status decision

  • Inform the worker/deemed employer and confirm that the original SDS is correct giving reasons why;


  • Issue a new SDS with a new decision to the relevant parties, again giving its reasons

  • If a new SDS is issued, the end client must ensure it took reasonable care to arrive at that decision a new SDS

If the end client fails to respond within 45 days then it assumes responsibility as fee payer (along with the associated responsibilities and liabilities).
The updated legislation and HMRC guidance highlight a number of additional points which should be noted:

  1. The 45-day time limit within which to respond begins from the date a disagreement is received. But please note: HMRC’s updated guidance confirms that a disagreement may be made verbally. It does not have to be in writing (although it should include explanation).  This is an important consideration for the disagreement process, when the time scale can be triggered by verbal disagreement, as it requires robust admin procedures for logging disagreements (and it vitally important that whoever is on the receiving end of the disagreement fully understands what is needed and how it must be reported). In short: you may receive the challenge verbally but make sure that everything that you do in response is properly documented.

  2. While an end client will automatically assume the mantle of fee payer if it fails to respond to a disagreement within the 45-day time limit, this isn’t a permanent status.  The updated legislation states that if an end client provides a response after the 45-day limit, then at the point at which it provides the response (and issues an updated SDS if applicable) it will cease to have the status of fee payer and potential liability as this will then pass to the next party in the chain (where there is an intermediary between the end client and the contractor’s company).

  3. Where a response to a disagreement results in the provision of a new SDS, the client can confirm a date of applicability - i.e. it can confirm that the new status will apply from a specific date.

  4. If a disagreement is notified to the client after the final contract payment has been made, the client is under no obligation to respond.

These points highlighted provide fundamental differences to the disagreement process as stated when the legislation was first released.  It is vital all end client businesses have a full grasp of what their obligations are.

Practical requirements

As mentioned above, whilst the legislation provides what must be done, it does not clarify how it must be done.

This provides end client business with the latitude to develop their own systems and procedures to suit their business - however it can be a little daunting when starting from scratch.  Our top tips for end client businesses are:

  1. Understanding the legislation

The legislative conditions are highlighted above.  It is important that these are not just known by the business owners, but also that any employee within the business who will be dealing with the disagreement process is also fully aware of the end client’s procedures, time limits and ramifications for failing to deal with these properly.

  1. Administration

It is clear that the administration of a disagreement process will be the key to compliance, especially where verbal disagreements are provided.Our best practice advice would also be to provide a detailed factsheet to contractors on how they can disagree, offering a dedicated, centralised, phone number, email etc. This way you have more control over the process and who will deal with the disagreements– however, most importantly,the disagreement starts the clock ticking, even if it isn’t reported via the prescribed method laid down by the end client.

  1. Case law

The only way to provide an accurate SDS with sufficient reasoning and to respond to a disagreement process, is to engage in the law on IR35.While end clients businesses can appoint tax advisers and specialists to carry out the decision-making process, this does not of itself divest the end client of its responsibility to take reasonable care in making a decision.

Our best practice advice to all end client businesses is even if you do appoint a specialist adviser, invest time in understanding the fundamentals of IR35 and what the law says is required.This will enable you to deal more efficiently with any process you implement.

If you would like to discuss this article in more detail, please contact David Harmer by email or call us on 0333 920 5708

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