Free UK IR35 Status Determination Statement (SDS) Challenge Letter Template

IR35 Status Determination Statement Challenge

Off-payroll Working Rules  ·  26 May 2026

Dear Sandeep Mehta, Head of Workforce Risk,

I write to challenge the Status Determination Statement (SDS) you issued in respect of my engagement as Senior Data Engineer — Risk Reporting Programme. The SDS was received on 8 May 2026 (your reference NB-SDS-2026-RR-184). This letter is a formal representation under the client-led disagreement process in Chapter 10 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003. You are required by section 61T(3) of ITEPA 2003 to respond within 45 days of this representation — by 22 June 2026 — either confirming the original SDS with reasons or issuing a revised SDS reflecting the correct status. Failure to respond within 45 days renders you, as the client, the deemed employer for PAYE purposes under section 61T(7).

Contractor: James Andrew Holloway
Personal Service Company (PSC): Holloway Data Services Ltd (Company Number 13921047)
Unique Taxpayer Reference (UTR): 4421875590
Correspondence address: 6 Wildermere Court, Leeds LS6 4PR
Telephone: 07810 224507
Email: james@hollowaydataservices.co.uk

End-client: Northbridge Financial Solutions plc
Client contact for the disagreement process: Sandeep Mehta, Head of Workforce Risk
Assignment title / role: Senior Data Engineer — Risk Reporting Programme
Engagement start date: 1 September 2025
Engagement end date (or projected end): 31 August 2026
Day rate / contract value: GBP 685 per working day (PSC-billed, net of VAT)
Status sought by the contractor: an outside-IR35 determination — the engagement is, on the true facts, that of a self-employed contractor rather than a deemed employee

Date of SDS receipt: 8 May 2026
SDS reference: NB-SDS-2026-RR-184
Client's 45-day response deadline: 22 June 2026 (ITEPA 2003 s.61T(3))
Statutory framework: Income Tax (Earnings and Pensions) Act 2003 Part 2 Chapter 10 (off-payroll working rules); Finance Act 2020 Schedule 1 (Private Sector reform from 6 April 2021); Finance Act 2017 (Public Sector reform from 6 April 2017); HMRC Employment Status Manual ESM10025 (client-led disagreement process)

Summary of the client's SDS reasoning:
The SDS recorded an inside-IR35 determination, citing: (a) the engagement's length (12-month contract with two prior renewals); (b) the contractor's presence in the client's Workforce Risk team daily standups; (c) the use of client-issued laptop and access tokens for security reasons; and (d) a CEST result returning "Employed for tax purposes". The SDS did not address the contractor's right of substitution, the absence of any obligation on the client to provide work between sprints, the contractor's separate ICO registration and indemnity insurance, or the contractor's parallel paid engagement with two other unrelated clients during the same period.

The SDS misapplies the Ready Mixed Concrete multi-factor test by treating the duration and the operational integration into a single team as conclusive of employment status, when the totality of the engagement — including a documented right of substitution exercised once in October 2025, the contractor's ability to refuse sprint work (and the client's freedom not to offer work) between completed sprints, parallel paid engagements with two other unrelated clients, and the contractor's own PSC infrastructure (ICO registration, PI insurance, training spend, payroll for a part-time bookkeeper) — points clearly to "in business on own account" status under stage three of Atholl House and the post-PGMOL settled framework.

HMRC's Check Employment Status for Tax (CEST) tool is a 35-question online questionnaire used by many clients as the foundation of the SDS. The client recorded a CEST outcome of "Employed for tax purposes" (inside IR35) as part of the SDS process. HMRC's Employment Status Manual at ESM10001 confirms that HMRC will stand behind a CEST result only where the inputs accurately reflect the working arrangements; where the inputs misrepresent the engagement, the CEST result is no defence to subsequent HMRC challenge.

Methodology critique: The CEST tool has well-documented limitations. It applies a binary inside/outside output with no scope for nuance; it under-weights mutuality of obligation following its 2019 update; and it produces an "Unable to make a determination" outcome in approximately 20 per cent of cases. These limitations have been the subject of repeated criticism by the House of Lords Select Committee on Economic Affairs and by the professional bodies (CIOT, ICAEW, IPSE).

Contractor's dispute of the CEST inputs:
1. Substitution input — the client answered "No" to the question of whether a substitute would be acceptable. This is inconsistent with the actual contract (clause 4.2 of the Master Services Agreement dated 1 September 2025) which permits substitution with the client's reasonable approval, and with the documented exercise of substitution on 14 October 2025 when the contractor sent his fellow PSC contractor as a substitute for four working days while attending a family bereavement.

2. Mutuality input — the client answered "Yes" to the question of whether the client must offer further work. This is contradicted by the contract's sprint-by-sprint engagement model (clause 6.1) and by the documented two-week gap in September 2025 between sprints when no work was offered or invoiced.

3. Direction and control input — the client answered "Yes" to the question of whether the client has the right to direct how work is done. This is inconsistent with the contractor's role as a senior specialist deployed precisely because the client does not have the in-house expertise to direct the technical execution — the contractor sets the technical approach within the scoped sprint deliverables.

4. Equipment input — the client answered "Yes" to providing equipment. This is technically correct (laptop and access tokens) but the underlying basis is security clearance, not employment integration — the contractor uses his own development tooling, training environment and reference materials in parallel.

A corrected CEST run with these inputs aligned to the documented working practice returns "Self-employed for tax purposes".

You are invited to re-run the CEST tool with inputs that accurately reflect the documented working arrangements and to reissue the SDS based on the corrected result, or alternatively to abandon CEST reliance and conduct a multi-factor employment status analysis as set out below.

The leading authority on employment status is Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497, in which MacKenna J set out the three-stage multi-factor test: (i) the worker performs personal service for remuneration with mutuality of obligation; (ii) the worker is subject to a sufficient degree of control by the engager; and (iii) the other terms of the contract are consistent with a contract of service. Stage three is a "stand back" or "in business on own account" assessment of the engagement as a whole.

The Court of Appeal in Atholl House Productions Ltd v HMRC [2022] EWCA Civ 501 (Kaye Adams) restated this framework and emphasised that all the relevant terms of the engagement and the surrounding circumstances must be weighed at stage three — including factors pointing away from employment such as the worker's ability to undertake other work and the absence of employee benefits. The companion case HMRC v Kickabout Productions Ltd [2022] EWCA Civ 502 (Paul Hawksbee) applied the same framework to a long-running radio engagement.

The Supreme Court in Commissioners for HMRC v Professional Game Match Officials Ltd [2024] UKSC 29, handed down on 16 September 2024, reset the threshold at stages one and two: mutuality of obligation exists where work is offered and performed for payment even with bilateral cancellation rights, and control includes contingent framework control. The Supreme Court remitted the case to the First-tier Tribunal to assess stage three; in May 2026 the Tribunal held that despite mutuality and control being made out at the individual contract level, the overall relationship was not one of employment.

Application to this engagement:

(i) Personal service and mutuality of obligation:
The Master Services Agreement at clause 4.2 expressly permits substitution with the client's reasonable approval (a qualified right under Express and Echo Publications v Tanton). The right was exercised once in October 2025 — Mr Adam Carrington, a fellow PSC contractor with the same security clearances, was sent as a substitute for four working days during the contractor's family bereavement. The client accepted the substitute, the work was invoiced through Holloway Data Services Ltd, and no PAYE/NIC was operated. The right of substitution is therefore both contractually present and exercised in practice — a strong indicator against personal service. Mutuality of obligation, post-PGMOL, is established at the individual sprint level but the contract does not require the client to offer further sprints — sprints are commissioned individually under separate statements of work.

(ii) Control:
The contractor sets the technical approach within the scoped sprint deliverables, subject only to the client's reasonable approval of the overall architecture. The contractor is not subject to client supervision in execution and is not subject to performance management, line-management reviews or competency frameworks applied to the client's permanent staff. The contractor does attend the Workforce Risk team's daily standup — but only to coordinate dependencies, not as an instance of client direction. Under PGMOL, contingent framework control exists at the engagement level (the client decides what to procure and on what timescale) but the contractor retains professional discretion in performance.

(iii) Other terms — "in business on own account":
The "in business on own account" assessment under stage three of Ready Mixed Concrete / Atholl House points strongly to self-employment: (i) the contractor operates through a PSC (Holloway Data Services Ltd, CRN 13921047) with separate VAT registration (GB 364 8855 22), ICO registration (ZB7755041) and professional indemnity insurance of £1M; (ii) the contractor has two other paid engagements during the same period with unrelated clients (a separate engagement with a Manchester insurance broker and quarterly consulting work for a Cambridge analytics firm); (iii) the contractor invests in training (Snowflake SnowPro Advanced and dbt Coalition tickets in 2025-26) and employs a part-time bookkeeper through the PSC; (iv) the contractor takes financial risk through the sprint-by-sprint engagement model — there is no guaranteed minimum income and no client obligation to offer further sprints; and (v) the contractor receives no employee benefits (sick pay, holiday, pension, training budget) from the client.

Mutuality of obligation (MOO) and the right of substitution are the two factors most commonly mishandled in SDS analysis. Following PGMOL [2024] UKSC 29, MOO is established at the level of each individual engagement once work is offered and performed for payment; the absence of an umbrella obligation to offer further work no longer defeats MOO at the basic threshold. However, the strength or weakness of the umbrella obligation remains relevant at stage three of the Ready Mixed Concrete test as part of the overall "in business on own account" assessment.

Mutuality of obligation in this engagement:
There is no umbrella obligation. Each sprint is commissioned under a separate Statement of Work and each invoice is raised on completion of the sprint deliverables. In September 2025 there was a two-week gap between completed sprints during which no work was offered by the client and none was invoiced. The contractor was free during that period to take on paid work for the Manchester insurance broker (and did so). Following PGMOL, MOO exists at the level of each individual sprint once work is offered and performed for payment — but the absence of umbrella MOO is significant at stage three of the multi-factor test.

Right of substitution: the contract provides a limited or qualified right of substitution — substitution is permitted subject to the client's reasonable approval, security clearance or notice requirement.

Substitution in practice:
Substitution was exercised in practice on 14 October 2025 when Adam Carrington (PSC contractor with the same security clearances) was sent as a substitute for four working days during the contractor's family bereavement. The client accepted the substitute on the day notified; the work was invoiced through Holloway Data Services Ltd; no PAYE/NIC was operated. The qualified-right pattern (subject to the client's reasonable approval, primarily for security clearance reasons) is consistent with self-employment in modern professional consultancy engagements.

You are formally notified under section 61T of the Income Tax (Earnings and Pensions) Act 2003 (as inserted by Schedule 1 of the Finance Act 2020 for medium and large private sector clients, and Finance Act 2017 for public sector clients) that the contractor has invoked the client-led disagreement process in respect of the Status Determination Statement identified above.

Your statutory obligations:
(a) consider the representations set out in this letter and any further evidence supplied;
(b) within 45 days of this representation (by 22 June 2026), respond in writing either confirming the original SDS with reasons or issuing a revised SDS;
(c) where a revised SDS is issued, provide it to the contractor and to any deemed employer in the labour-supply chain.

Consequence of non-response: failure to respond within 45 days renders you the deemed employer for PAYE purposes under ITEPA 2003 s.61T(7) — irrespective of the position of any third-party deemed employer in the labour-supply chain. HMRC ESM10025 confirms this as a hard statutory consequence rather than a guidance position.

Reasonable care: the client's SDS must be issued with reasonable care under ITEPA 2003 s.61NA. HMRC ESM10014 records that a determination based on the role rather than the engagement, a blanket determination without individual assessment, or a CEST result based on inaccurate inputs may all amount to a failure to take reasonable care, with the result that the SDS is invalid and the client retains PAYE liability.

The contractor respectfully requests that the end-client (a) reconsider the SDS in light of the representations set out above; (b) within 45 days, either confirm the original SDS with reasons or issue a revised SDS reflecting the correct status; (c) where appropriate, re-run the CEST tool with inputs that accurately reflect the documented working practice; and (d) acknowledge receipt of this representation in writing within 7 days. The contractor reserves the right to escalate the matter to HMRC, to seek a determination from the First-tier Tribunal (Tax Chamber) and to recover any over-paid PAYE / NIC arising from a wrongful inside-IR35 determination.

YOURS FAITHFULLY,