On 6th April 2021, medium and large private sector companies will become tasked with administering the IR35 rules, which means determining the employment status for tax (IR35 status) of contractors they engage. As part of the end-client’s obligations under the IR35 reform, they must provide you, the contractor, with a Status Determination Statement (SDS) outlining the IR35 status of the assignment and the factors that contributed towards this decision.
Given for many contractors the SDS is a new concept, in this guide we’ll explain what it is exactly, why it’s vital that your end-client issues you one and how it might even help you tell if your IR35 assessment has been made fairly.
What should a Status Determination Statement include?
According to government guidance, an SDS needs to meet three requirements:
- It must clearly state the IR35 status of the assignment, clearly stating if the end-client believes your engagement falls inside or outside the scope of IR35
- The reasons they have arrived at this decision, such as levels of Control, Mutuality of Obligation and the requirement for Personal Service
- The end hirer must have taken reasonable care when arriving at their determination
What is the reason for an Status Determination Statement?
To promote transparency throughout the supply chain and ultimately ensure accurate IR35 assessments are made by businesses. An SDS is an opportunity for end-clients to demonstrate that ‘reasonable care’ has been taken when assessing a contractor’s employment status for tax.
If the end-client has not taken reasonable care, they assume the role of the fee-payer, which means they are responsible for the tax liability for contracts found inside IR35. As a result, a valid SDS is a key component in a business compliantly managing IR35 reform.
What counts as ‘reasonable care’?
Up until recently reasonable care was open to interpretation and had no clear definition, but having received criticism from industry experts, the government detailed ways it can be shown by end-clients.
This includes:
- Seeking the advice of a qualified professional advisor
- Reassessing the engagement if there are changes to a worker’s contract or working practices
- Accurately completing HMRC’s CEST tool
- Applying HMRC guidance
What if you don’t agree with your Status Determination Statement?
If an SDS doesn’t meet HMRC’s standards, contains inaccurate information or points towards a blanket IR35 determination (which is non-compliant), then you may have grounds to challenge it. To find out how to overturn potentially an inaccurate IR35 assessment, take a look at our guide on protecting your IR35 status.
When will you receive one?
As of 6th April, all contractors engaged by businesses impacted by IR35 reform should be issued with an SDS. This is irrespective of whether you are starting a new contract or are already working on a project before the introduction of IR35 reform but it rolls over past this date. In theory, end-clients should be quick to distribute this document given that until they do, they take on the fee-payer’s responsibilities and will be liable for IR35.
A flexible solution
No matter what your SDS is, we’re here to help. As part of our Essential Pro package, you can flexibly switch between limited and umbrella, depending on whether your assignment is found inside or outside of IR35.
If you would like to find out more information, simply request a callback and a member of the team will be in touch.
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