What is a Status Determination Statement (SDS)?

A status determination statement is a written statement put together by the decision-maker, the end client, declaring the employment status of a contractor following an IR35 assessment.

The statement which can be created in the form of a document or email will outline whether IR35 applies to their engagement with the contractor and provide details on how the deemed employment status conclusion was made.

When putting together an SDS, the end client is obliged to take reasonable care. With this in mind, blanket decisions or assessments on groups of roles, instead of assessing contractors on a case-by-case basis, is unlikely to demonstrate ‘reasonable care’.

After the SDS has been created, the end client must pass it on to the PSC worker as well as to the party directly below it in the contractual chain, which is usually a recruitment agency. In longer supply chains, there may be other parties involved. If this is the case, the SDS needs to be passed down until it reaches the party closest to the PSC.

If the end-client fails to deliver the SDS, the responsibility falls on the fee-payer. Once the end client has passed the SDS on to the party below it in the chain, it loses the potential liability as fee-payer and passes this on to the agency.

What is considered when writing an SDS?

An SDS must be completed for every contract agreed with an agency or worker. An SDS will be based on the outcome of an IR35 assessment. When conducting an assessment, end-clients will consider:

• The Right of Substitution
• Mutuality of Obligation (MOO)
• Control

Private sector end-clients responsible for writing SDS from April 2021

In the public sector, end-clients are already responsible for creating SDSs and have done so since April 2017. Private sector end hirers won’t be legally required to decide the IR35 status of a contractor and complete an SDS until the reforms becomes law on 6^th April 2021.

SDS exclusions for some end-clients

Private sector end-clients who are considered to be small, will not be affected by the changes in responsibility, if they meet two of the following criteria:

• Annual turnover less than £10.2 million
• Balance sheet total less than £5.1 million
• Less than 50 employees

The government has included clauses in the legislation to ensure medium or large organisations do not form small subsidiary companies to obtain services from PSCs. The legislation applies to the parent company based on the aggregate amount of turnover and aggregate amount of the balance total of all connected companies.

The small business exemption does not apply to end-hirers in the public sector.

Caunce O’Hara offer a range of IR35-based insurances and an IR35 Contract Review service. Through our partners at Markel Tax we can also offer you expert advice regarding IR35 taxation.

For further information please call 0333 321 1403.

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Related articles:

How contractors can appeal a failed IR35 review decision

IR35: What is ‘reasonable care’?

How does HMRC define a PSC?