What Happens If a Client Disagrees With Your IR35 Status

What happens if a client disagrees with your IR35 status determination

If you contract through your own limited company, you'll be used to seeing a Status Determination Statement (SDS) land before an engagement starts. But what if you (or the agency sitting between you and the end client, known as the "deemed employer") think the client has got it wrong? HMRC has a defined route for this: the client-led disagreement process. Here's how it works, in plain terms.

What is a status determination statement?

An SDS is the document a medium or large private-sector client (or any public-sector client) must produce under the off-payroll working rules, setting out whether it considers an engagement to sit inside or outside IR35, and the reasons for that conclusion. The client must take "reasonable care" in reaching this view, and it must pass the SDS down the labour supply chain before the first payment is made. HMRC's guidance on this is set out in Status determination statements (part 9).

It's worth being clear from the outset: an SDS reflects the client's own conclusion about the engagement. This site does not verify or determine IR35 status, and no job listing on any board can override the client's legal responsibility for that determination.

The client-led disagreement process

Where a contractor or the deemed employer disagrees with the client's determination, HMRC's rules give them a formal way to challenge it: the client-led disagreement process. This isn't a tribunal or an HMRC adjudication. It's a mechanism built into the off-payroll working rules that requires the client itself to reconsider its own decision.

According to HMRC's guidance in Client-led disagreement process (part 10) and the Employment Status Manual (ESM10015), the worker or deemed employer can make representations to the client if they believe the SDS is wrong, or if they think it's no longer accurate because working practices have changed.

Key points of the process:

• The client must have a disagreement process in place for contractors and agencies to use, as confirmed in Off-payroll working for clients.
• Tax treatment stays as originally set out in the SDS while the disagreement is being considered; nothing changes automatically just because a challenge has been raised.
• The client must respond within 45 calendar days of receiving the representations.
• If the client maintains its original view, it must tell the disagreeing party that the SDS still stands, and explain why.
• If the client changes its view, it must withdraw the original SDS, issue a new one, and state the date from which the new determination takes effect.

Where a new SDS is issued, the client is still expected to take reasonable care in reaching that fresh conclusion, just as with the first determination.

When can a disagreement be raised?

HMRC guidance is clear that a worker or deemed employer can raise a disagreement at any point during the engagement, right up until the last payment is made for the worker's services. The Explanatory Note to the off-payroll working regulations confirms that the disagreement process applies during the engagement and before the final chain payment, not after the contract has fully closed out. This matters for contract timing: if you intend to challenge a determination, doing so promptly, and well before the final invoice is settled, keeps the process available to you.

What this means in practice

If you think an SDS doesn't reflect how you actually work, for example, the client's stated position doesn't match the level of control exercised over how, when and where you do the work, or ignores a genuine right of substitution, raising a status disagreement is the structured route to flag that. Control and substitution are central themes in current case law on employment status, including the Supreme Court's PGMOL decision, and they're often more central to a status argument than the old idea that IR35 turns on "mutuality of obligation" alone.

A client-led disagreement process is not a guarantee of a different outcome. The client can maintain its original SDS as long as it gives reasons, and HMRC's own position is that tools like the Check Employment Status for Tax (CEST) service produce results that are not determinative on their own; they're one input among several. Equally, a contract review or an SDS is best understood as evidence the client has provided about how it sees the engagement, not proof of status in itself.

If you're weighing up whether to challenge a determination, it's worth speaking to a specialist, an IR35 contract reviewer or a contractor accountant, who can look at your actual working practices alongside the paperwork. For wider questions about employment rights linked to your engagement, the Fair Work Agency (FWA) is the relevant regulator to contact, rather than this platform.

Looking for engagements where the client has already published its position? You can browse outside-IR35 contracts or check current day-rate benchmarks to see how roles in your sector are being advertised and priced.

This platform does not determine, verify, or warrant IR35 status; the SDS is the client's legal responsibility. Contractors should take their own advice and consider IR35 insurance.