What is a Status Determination Statement?

Firstly, what is IR35?

IR35 is a legislation that looks at a contractor’s working arrangements to determine whether their practices place them ‘inside’ or ‘outside’ IR35.

If a contract shows that a worker has the same level of risk, liability and responsibility as other contractors, they will be seen as falling ‘outside’ of the legislation.

However, if a contract is seen as being similar to that of a permanent employee, then the worker will fall ‘inside’ – this means they will be subject to the same tax and National Insurance as an employee, which will result in them having to pay more than if they were to fall ‘outside’.

This will also limit other benefits, such as being able to claim back on business expenses.

As each contract is looked at individually, an IR35 status can change with each client, which means you could potentially fall both ‘inside’ and ‘outside’ during the same year.

Take a look at our IR35 Guide for more information.

Who decides a contractor’s IR35 status?

Before April 2021, contractors would decide their own status, however, this responsibility now falls on the client.

There is a government tool called the Check Employment Status for Tax (CEST), which can be used to determine a worker’s employment status by looking at the contractor’s personal service, control and mutuality of obligation.

It can help to work out a status using information based on:

• Details of the contract
• The worker’s responsibilities
• Who decides what work needs to be doneWho decides when, where and
• how the work is done.

However, the reliability of this tool has raised concerns over the years, with many people reporting that it has failed to deliver accurate results.

What is a Status Determination Statement?

When a client has made an informed decision about their contractor’s IR35 status, this will need to be presented to them in the form of a Status Determination Statement (SDS).

An SDS must clearly state the contractor’s status and must include information on how the client has come to this conclusion.

A contractor is perfectly within their rights to disagree with this decision, and if this happens then the client will need to:

• Consider the contractor’s reasons for disagreeing
• Decide whether to stick to their original decision or to provide a new SDS because they feel it was incorrect
• Keep a record of the determinations and the reasons, as well as records of representation made to them
• Confirm which date the determination is valid from.

A disagreement can be raised until the contractor receives their last payment and the client must respond within 45 days.

Our team of experts are available to answer any queries you may have, so drop us a line on 01442 795 100, email sophie.lewis@dolanaccountancy.com, or contact us via live chat.