Q. With IR35 reform now nailed on for next April, like many of my fellow contractors, I’m bracing myself for the worst – working off the assumption that my client, who isn’t too knowledgeable on IR35 judging by past conversations, will take the risk-averse route and place my contract inside IR35 in the next few months. Let’s say this happens and I’m unfairly taxed inside IR35 – what are my rights? If I show my contract belongs outside the rules can I claim back the tax from wrongful IR35 decisions?
A. In theory, as a contractor, you do have the ability to reclaim the money you have overpaid in tax if you can prove your client incorrectly placed your contract inside IR35. However, that’s not to say this is a simple process or one that comes with any guarantees.
Assuming your client wrongly places your engagement inside IR35, where you will be taxed as an employee, should you not be able to overturn this decision initially with the client directly it’s not impossible to claim back tax further down the line.
That said, it may prove difficult to achieve this for a number of reasons. For example, you would need to prove that a wrongful IR35 decision had been made – something that you might need to escalate to a tax tribunal to demonstrate. It’s also worth noting that HMRC is unlikely to accept what in most cases would be a significant tax rebate without putting up a considerable fight – and not just because the tax office wants to hang onto revenue. If it was easy for contractors to claim tax repayments from incorrect IR35 decisions. it could open the floodgates, with thousands of independent professionals likely to stake their claim for a rebate.
However, if you’re convinced that you have been unfairly placed inside IR35, an IR35 status review supports this and you’re determined to secure a refund from HMRC, you can claim via your self-assessment tax return in the hope of triggering a reverse enquiry. There are also a number of companies that specialise in assisting with tax rebates, that will take care of the process on your behalf.
So to recap, yes, you can technically claim back tax from inaccurate or unfair IR35 decisions. However, this is by no means straightforward and it’s vital that you are certain that you have a strong case. If an incorrect repayment claim is submitted to HMRC, as explained previously on Contractor Weekly, you could be charged a penalty based on a percentage of the amount you wanted to reclaim, even if no repayment has been made.