HMRC have updated SDC guidelines to help contractors’ understanding

This week has seen some significant changes to the way contractors who operate through Personal Service Companies can claim expenses. This has been frustrating those who are most likely to be affected by the change to the regulations as there has long been contention over whether the guidelines which are used to judge whether a client has supervision, direction and control.

Determining whether someone is working inside IR35 has become increasingly important in the wake of the recent changes, and groups that represent contractors have been requesting clarification on the matter of SDC for months.

HM Revenue and Customs’s guidance does acknowledge that there is no legal definition of the SDC test and therefore does not include any information about the evidence that will be accepted by either the department or the courts should a case go that far. The guidance is still hugely subjective, with the notes explicitly stating that the application of SDC will depend largely on the details of individual arrangements.

The long-awaited SDC test doesn’t contain as much definition as many people would like, but it does state that the test is one to be taken in isolation. Whether or not some of the other employment status indicators are met, such as financial risk or the right to personal service, these will not be taken into account when applying the SDC test.

They have also made it clear that extent is not a factor in the test and that the SDC test is one which is either met or it isn’t. The guidance goes on to say that the new travel and subsistence legislation assumed that the SDC test is met unless it is explicitly proven otherwise. Responsibility for determining whether or not SDC applied will lie with the employment intermediary or agency.

Because many intermediaries will assume that contractors are under SDC to minimise risk, meaning that the onus will be on the contractor themselves to demonstrate that SDC does not apply.

HMRC have identified some pieces of information that will be needed to determine whether the legislation applies, including details of the contract, monitoring of the work involved and who the contractor reports to, but the ‘clarification’ may not be as helpful as some were hoping.

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