What is a Status Determination Statement?

What is a Status Determination Statement? - Close up of end client's hand writing a Status Determination Statement.

If you’re self-employed, an agency or an end hirer, you’ll likely be aware of the IR35 changes that were made to the private sector in April 2021.

As part of these changes, the end client (decision-maker), will become responsible for determining the IR35 status of the contractors they engage.

The end-client will formally declare the status by way of a Status Determination Statement, also referred to as an SDS.

A status determination statement is simply a written statement put together by the decision-maker, the end client, stating the employment status of a contractor following an IR35 assessment conducted with reasonable care.

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

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 completing an assessment, end-clients will consider:

  • Personal Service/ The Right of Substitution – is the contractor required to provide the services personally?
  • Mutuality of Obligations (MOO) – is the end client obliged to offer work and the contractor obliged to accept the work?
  • Control – what level of control does the end client have over the contractor?

Taking reasonable care

The end client is obliged to take reasonable care when creating an SDS. This means making a fair and well considered decision for each contract assessed.

The degree of reasonable care that needs to be taken is affected by the capabilities and experience of a client. For large international clients, a high degree of care is expected by HMRC while for a smaller company operating without a finance department, the degree of care they’re able to provide may be reasonably less.

It’s unlikely that blanket decisions or assessments on groups of roles, instead of assessing contractors on a case-by-case basis, will demonstrate reasonable care.

Consideration to the specific facts of each individual case must be taken. In some instances, where the contracting population can easily be segmented into groups with identical contracts or working practices, a blanket decision could be acceptable.

Steps to take once the SDS is written

When the SDS has been created, the end client needs to pass it on to both the PSC worker and 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. In this situation, the SDS needs to be passed down until it reaches the party closest to the PSC.

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. If the end-client fails to deliver the SDS, the responsibility lies with the fee-payer.

End-clients not responsible for determining IR35 status

From the 6th April 2021, the private sector will become aligned with IR35 rules in the public sector. This means end clients will be legally required to decide the IR35 status of a contractor and complete an SDS, however there are some end clients who won’t have to do this.

Small private sector organisations will not be responsible for deciding IR35 status. For an end client to be deemed a small organisation, they must 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 make sure that medium or large organisations are not tempted to 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.

To find out more about IR35, visit our IR35 hub today. 


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