What is an IR35 Status Determination Statement and who must provide one?

Full answer

IR35, formally known as the off-payroll working rules, determines whether a contractor working through a personal service company (PSC) or intermediary should be treated as an employee for tax purposes. The Status Determination Statement (SDS) is a key compliance document under these rules. What the SDS must contain: The SDS must state: 1. Whether the engagement is inside IR35 (the worker would be an employee if engaged directly) or outside IR35 2. The reasons for that conclusion The reasons requirement is important -- a blanket determination without explanation is not a valid SDS and exposes the client to liability. Who must provide the SDS: Since April 2021, medium and large private sector businesses that engage contractors through intermediaries are responsible for determining IR35 status and issuing the SDS. Public sector bodies have held this responsibility since April 2017. A business is medium or large if it meets at least two of the following in its last financial year: annual turnover over GBP 10.2 million, balance sheet total over GBP 5.1 million, or more than 50 employees. Small companies (below two of these thresholds) are exempt -- in those cases the contractor's own PSC remains responsible for determining and paying any tax due. The SDS must be passed down the labour supply chain. The client gives it to the agency or the worker directly. If there is a chain of agencies, the SDS (or a copy) must flow down to the party paying the PSC. Disputing the SDS: Contractors have the right to dispute an SDS they disagree with. The client must respond within 45 days with either a new determination and reasons, or confirmation that the original determination stands. HMRC's Check Employment Status for Tax (CEST) tool is commonly used to support determinations, though it is not mandatory and is not always accepted as definitive. If IR35 applies, the fee payer (usually the end client or agency) must deduct income tax and employee NI before paying the contractor, and pay employer NI on top.

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