What is a Status Determination Statement for IR35?

A Status Determination Statement (SDS) is a written statement prepared by a business which states the employment status of a contractor whom they engage. As of April 2021, all large and medium sized businesses have been required by the off payroll working rules (IR35) to conduct an assessment and produce a SDS for any contractors they engage via an intermediary. Our Employment Law team provides an overview of how to produce an SDS and what should be included in one.  

Do I need to produce a Status Determination Statement?

Your business will need to produce an SDS if it is a medium or large organisation and engages contractors through an intermediary, such as a personal service company.

Your organisation will meet the threshold of being a medium-sized business for IR35 purposes where it meets two of the three following conditions:

• Annual turnover is more than £10.2 million
• Balance sheet total is more than £5.1 million
• Employs more than 50 employees

How do I produce a Status Determination Statement?

Before producing an SDS you will need to conduct an IR35 assessment to determine whether the individual is genuinely self-employed or if their relationship with the business is more akin to that of an employee. You must use reasonable care in your assessment, which means looking beyond the wording of the individual’s contract to see how the relationship operates in practice. Factors that may be relevant include:

• Level of control over the contractor
• How long they have worked for the business
• How they are paid
• Whether they are required to provide the services personally
• Their integration into the business

If your business engages more than one contractor you may need to assess each one individually and prepare an SDS for each individual.

Once you have made an assessment as to whether the individual is self-employed or an employee, you must state your assessment in writing, including your reasons for coming to your conclusion. This statement should then be given to the individual and the fee payer (if your business is not also the fee payer).

If you do not produce an SDS or fail to take reasonable care in your assessment, your business may become liable for any tax or NI contributions that are due for the relevant period.

What should be included in a Status Determination Statement?

The SDS should identify all the parties in the chain; that is the contractor, fee payer, and end client. It should state your finding as to whether the individual is an employee or independent contractor, and include your reasons for coming to that conclusion. The individual may dispute your determination so the SDS should also set out the process for how they can appeal your determination.

Check Employment Status for Tax Tool

The Check Employment Status for Tax (CEST) tool is an online tool to help businesses assess the employment status of their contractors. The CEST tool asks a number of questions about the engagement of the contractor and uses information inputted by employers to produce an assessment. Though CEST may be helpful it should not be relied upon, and using CEST does not mean that you will not have to conduct your own analysis as to the status of your contractors.

The Department of Work and Pensions (DWP) provided a recent example of how relying on the CEST tool alone can lead to costly mistakes. HMRC found that the DWP had improperly assessed the status of its contractors for the years 2017 to 2020, despite using the CEST tool. As a result the DWP has agreed to pay almost £88 million to HMRC to rectify the mistake.

Producing a Status Determination Statement can be a confusing process, but there may be significant tax and reputational consequences if you fail to do so. If you need help understanding IR35 and how to assess you contractors’ employment status contact our Employment Team today on on 023 8071 7717 or email employment@warnergoodman.co.uk.

To receive regular Employment Law updates from the team regarding recent tribunal cases and legislation updates, you can subscribe to our weekly Employment Law Newsletter by completing our subscription form or emailing us at events@warnergoodman.co.uk. 

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.