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Client-led disagreement process (part 10)

Updated 15 December 2023

Read Purpose, scope and background (part 1) of these guidelines, if you have not already.

You should read these guidelines alongside existing off-payroll working guidance. They are not designed to be used in isolation, or to create an end-to-end process for organisations to comply with the rules.

Your organisation should apply the guidelines to reflect the complexity and scale of your own off-payroll working engagements. Use these guidelines to help make informed decisions, based on individual circumstances.

Recognising a valid disagreement

The off-payroll working rules make the client responsible for deciding a worker’s status. The rules also require the client to deal with disagreements of these decisions, made by workers or deemed employers. Other parties in the labour supply chain do not have the right to disagree with an employment status decision.

You should have systems and processes in place, to enable you to consider and respond to any disagreements.

Workers or deemed employers may raise disagreements verbally, or in writing. Hiring managers should be aware that a conversation with an off-payroll worker may constitute a disagreement. They should be aware of how to support off-payroll workers through the disagreement process.

A valid disagreement must include reasons for the dispute, in relation to the employment status indicators. You need to consider the disagreement on the strength of the information or evidence available. You can reject a disagreement if a worker or deemed employer raises it without providing reasons.

Minimum requirements

It’s up to you how you deal with disagreements, but as a minimum you must:

• consider the representations made by the person raising the disagreement
• leave the tax treatment of the worker unchanged, while any disagreement is considered
• respond to the disagreement within 45 calendar days, from the date you receive it

Your response must show that the representations have been considered, and:

• if the original outcome is unchanged, inform the disagreeing party of that decision, providing reasons

• if the outcome has changed:

  • state that the previous status determination statement is withdrawn
  • provide a new status determination statement to all relevant parties, indicating the date that the new status determination statement is effective from

Any new status determination statement must follow the usual rules to be valid, and you must take reasonable care in coming to its conclusion.

Beyond this framework, you may administer your disagreement process as you see fit.  If you fail to respond to a disagreement within 45 calendar days, you will become the deemed employer for PAYE purposes. This means that you will be responsible for any tax, National Insurance contributions and Apprenticeship Levy due, until you respond.

Corrections to Real Time Information (RTI)

If the worker’s employment status changes as a result of a disagreement, and payments have been made, there will have been an underpayment or overpayment of tax. The deemed employer will be required to make a correction.

Read more about this process in HMRC internal manual ESM10015.

Further considerations

You need to have the right people involved in considering disagreements. This may require more senior people than were involved in the original decision.

It’s important that the hiring manager is involved, particularly in cases where the disagreement has arisen from differences of opinion about what the work involves, on a day-to-day basis.

Examples of other (but not all) teams who may be involved include legal teams, where contractual matters are involved, or HR teams who have detailed knowledge of your organisation’s policies. You may choose to involve external tax advisers in your disagreement process, but must make sure you provide any response within 45 calendar days.

There’s no limit to the number of disagreements a worker or deemed employer can raise during the lifetime of an engagement. However, if they raise the same disagreement again, with no new facts or evidence, you can stand by your status determination statement, and close the disagreement, referring them to the previous outcome.

In practice we expect you will typically receive most disagreements at the start of an engagement. However, relevant parties may raise a disagreement at any point, until the final chain payment for the contract has been made. If you receive a disagreement during an engagement, you should establish the date from which the disagreement is effective.

Example 1

This is an example of an organisation effectively considering a disagreement.

A medium-sized organisation receives a disagreement in November, from a worker that has been providing services to them for the last 21 months. The worker states that their responsibilities have changed “recently”.

The organisation engages with the worker and carries out further fact-finding. The organisation considers the new information in line with the employment status indicators, and compares this to its original decision.

In December, it agrees that the deemed employment status has now changed to self-employed for tax purposes. The organisation considers the date from which the change is effective, to make sure the worker is taxed correctly. It concludes that the deemed employment status changed from the start of September.

The organisation issues a new status determination statement to the worker, and cascades this to the agency (who is the deemed employer). The agency makes the necessary adjustments in their payrolling system, to refund overpaid PAYE for September to November, and pays the worker gross going forward.

Example 2

This is an example of where an organisation has misunderstood the time limits it had to consider a disagreement.

A medium-sized organisation made a mistake when designing their disagreement process, as it had misunderstood the 45 day rule. When an off-payroll worker started, they were sent a welcome pack by post. This pack included a copy of the status determination statement, and a letter advising that the worker had 45 days from the date of the letter to appeal the determination, if they chose to do so.

HMRC opened a compliance check. They discussed the organisation’s systems and processes, including its disagreement process, where this misunderstanding came to light. The organisation changed its documentation, and sent an email to all of its current off-payroll workers, to advise them of their correct right to raise a disagreement.

The next section of the guidelines is Operating PAYE (part 11).