What is the IR35 Status Determination Statement (SDS)?
Information for contractors ahead of off-payroll worker changes
The rules for off-payroll working change from April 2021. Medium-sized and large-sized clients in the private sector must determine the status of the contractor whose services they hire.
Previously the contractor or intermediary through whom they worked made this determination. The end-client now has to provide a Status Determination Statement to the contractor or agency before a contract begins, confirming the outcome of their assessment and the reasoning behind it.
New IR35 rules were due to be introduced from April 2020, but were delayed due to the impact of coronavirus. So why have the IR35 regulations changed, and what should be included in a Status Determination Statement?
Why have IR35 rules changed?
The government introduced the new rules to combat ‘blanket’ determinations that covered multiple contractors, and that didn’t take into account the circumstances of individual contracts.
It’s important for tax purposes to establish whether a contract lies within IR35 rules. Being ‘inside IR35’ means the contractor is employed by their client, and subject to PAYE. The rule change places considerable responsibility on end-clients/fee payers, however, as they also become liable for unpaid tax or National Insurance if a decision is successfully challenged by HMRC during an investigation.
So what should an IR35 Status Determination Statement contain?
What information should be included with an IR35 determination?
A Status Determination Statement is a comprehensive assessment of a contractor’s working status with regard to individual contracts. The client needs to declare:
- The contractor’s deemed employment status as a result of their IR35 assessment
- The reasoning behind the determination that’s been provided
The client must pass the document to all parties in a supply chain, including the contractor, who can challenge the determination if they feel that it’s incorrect. If a contractor disagrees with the determination, they need to inform the client who has 45 days in which to respond.
If the determination changes, a new Status Determination Statement should be issued. There’s no obligation for the client to change their decision, however, but they do have to confirm this and offer an explanation.
Which private sector businesses must issue Status Determination Statements?
All public sector clients, and medium-sized and large-sized private sector clients, must apply the new rules from April 2021 if they meet two or more of the following criteria:
- An annual turnover in excess of £10.2 million
- More than 50 employees
- A balance sheet total in excess of £5.1 million
Third sector clients are included in this requirement, which means that some charitable organisations will also need to comply with the new regulations. An off-payroll determination statement provides clarity on a contractor’s status, and end-clients must take ‘reasonable care’ to arrive at their conclusion.
The obligation to take ‘reasonable care’ is important, but there’s little guidance from HMRC on what this constitutes. It might include seeking professional advice when making an assessment, for example, or making sure that each contract is assessed on its own merits rather than making ‘blanket’ assessments.
Obtaining professional advice on IR35 Status Determination Statements
An accountant’s guidance and input is instrumental in ensuring compliance with IR35 legislation. If you don’t currently use professional accountancy services, or a looking for a new accountant in your area, our specialist team can help.
Handpicked Accountants operate a database of local accountants around the UK, and we can provide referrals for a reliable accountant in your area. We base our recommendations on detailed knowledge of their specialisms and working practices – please contact one of the team to find out more.