Can I claim back tax from a wrong IR35 decision?

Q. I’ve just completed a contract that was deemed to be inside IR35 by my client. Would it be possible to argue the IR35 status afterwards and claim the tax back from the HMRC if I win the case? Or is this likely to cost me more than I could potentially claim back?

A. Given the sheer number of blanket IR35 decisions in recent years, which resulted in thousands of contractors being wrongly placed inside the scope of the legislation by clients, this is an important question. It’s also one that many contractors will want answering, as we approach IR35 reform in the private sector. 

Once a contract has concluded, the only way in which you could challenge the status decision if you disagreed with it would be to submit a tax/NIC repayment claim to HMRC via your SA statement.

If you submitted a repayment claim to HMRC yourself and didn’t use the services of an accountant or tax advisor, for example, then there would be no cost to you for doing this. As to how long any repayment would take to be processed by HMRC – this could vary from a few weeks to a few months.

However, you need to be aware that if you submit a repayment claim to HMRC and the tax office reviews it and your IR35 status then decides your client has made the correct IR35 determination, the taxman could charge you a penalty based on a percentage of the amount you were trying to reclaim, even if no repayment has been made to you. 

That’s why having your previous contract reviewed from an IR35 perspective is a good place to start and should give you a strong indication of whether you have a valid case. 

When beginning a contract, we also advise you to immediately challenge an IR35 decision should you feel that it’s incorrect or unfair. In short, the sooner you’re able to rectify a wrongful determination the less you’ll be overtaxed.

This answer was provided by IR35 specialist, Qdos Contractor.