As a contractor I’m sure the word SDS, or Status Determination Statement is something you’ve heard thrown around quite a lot in regards to your IR35 status. The reason for that is because of the importance it holds in both determining and proving your status.
What is an SDS?
A Status Determination Statement is one of the key elements of any IR35 determination and is essentially the glue that holds it all together. The purpose of the statement is to outline the contractors deemed employment status and the reasoning behind that conclusion.
Why are they a requirement?
Due to draft amendments to the IR35 legislation introduced within the Finance Bill 2020, end clients are now required to provide an SDS when assessing a contractors IR35 status. The intended purpose of this is to mitigate the risk of incorrectly classifying the IR35 status of an assignment down to either using a blanket rule or based on a one rule for all, role-based assessment. The biggest change to the legislation is that if the aforementioned requirements for a Status Determination Statement are not met, then the client will have failed to take ‘reasonable care’ in their decision making which would make them assume the responsibility of ‘fee-payer’ meaning they would be liable for unpaid tax.
This is why it is essential for the end client to provide a legally binding and true Status Determination Statement as part of their process.
Reasonable care, what’s that?
Whilst the term reasonable care is somewhat ambiguous in terms of the off-payroll legislation it would constitute making a full assessment on an individual basis and acquiring independent, legal advice.
You’d be right to assume therefore that blanket determinations would be a failure to take reasonable care, but it is yet to be seen if the HMRC will act on this.
So, how do you get one?
Every contract role post-April 2021 should come with a Status Determination Statement that the end-client must fill in as part of their due diligence. Unfortunately, they are under no obligation to give you a seat at the table when making that decision, but clients that want to ensure they’re attracting the best people for their projects may well allow your input.
What if the end client wants to use CEST for the determination?
The CEST tool can give them an indicative status determination but cannot be trusted for a full Statement Determination Statement, but to be frank it isn’t worth the paper it’s written on and is completely uninsurable.
One of the key reasons for this is because it doesn’t consider all the employment status factors needed to make a true IR35 determination. The main one of which being Mutuality of Obligation (MOO). According to the HMRC they omit MOO from the tools questioning because the mere exchange of remuneration for labour satisfies this clause. A fact that has been rebutted by judges in multiple IR35 tribunals.
Unfortunately, due to the extra layer of work that end clients have to take to complete an individual determination on each contractors IR35 status all to often private companies have opted to simply blanket ban PSC’s. In theory the changes to legislation should mean that they won’t be able to do this in the long-term, but until precedent has been set it may still happen all too often.
What can you do to convince the end client that conducting a full individual Status Determination Statement is within their interest?
The first thing you need to do is make them consider what the cost to them will be versus not completing a full SDS. I mean this in the sense of impact on their project by restricting their access to contractors who will only work through their PSC, or by making the case, gently, for the risk they run of not taking reasonable care by blanket banning PSC’s. Is it worth their while potentially being taken to court for not doing so?
There are several AI platforms available that can give them an immediate insurable determination, and for tougher decisions they can have this checked by a professional to ensure that they’re covered. The small incremental cost versus the savings of being able to use contractors on an outside IR35 basis would be minimal.
As you can see there’s a lot to consider when talking about Status Determination Statements, but hopefully after reading this you’ll have a better understanding of what they are and why they’re so important to determining the IR35 status of your next assignment.
If you have any questions feel free to contact us at [email protected] or call 0161 833 1044.
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