Under the off-payroll rules, from April 2021, private sector clients are responsible for determining a contractor’s IR35 status. The decision must be contained within a Status Determination Statement (SDS), alongside the client’s reasoning.
Here we look at what the SDS contains, how the assessment decision should be made, and what to do if you don’t agree with your client’s decision.
The off-payroll rules were initially due to go live from April 2020, however they were postponed until April 2021 due to the Coronavirus outbreak.
What is the Status Determination Statement?
Under the new rules, the end-client is responsible for establishing whether or not an engagement is caught by IR35 or not. Previously, this determination was left to the contractor’s limited company to decide.
The end-client must make a determination using reasonable care (see below), and pass this document, plus the reasoning behind the decision, to each worker and every party in the supply chain until it reaches the fee-payer.
Significantly, if any party in the supply chain fails to pass the SDS to the next party in the chain, then they will become the ‘fee-payer’, responsible for deducting the worker’s tax liabilities, and paying HMRC.
What does ‘reasonable care’ mean?
Clients must take ‘reasonable care’ when making employment status decisions. HMRC recently published guidance on this topic, following criticism that there was no official definition of what the term means.
According to the new guidance, all clients must demonstrate that they have assessed IR35 correctly, but HMRC may expect a higher degree of care to be taken by larger companies that have greater resources to dedicate to compliance.
Companies of all sizes can comply with this obligation by outsourcing employment status work to specialist firms, such as Qdos.
Should the client fail to do take reasonable care, they will inherit the IR35 liability, regardless of whether it is the ‘fee payer’ in the supply chain.
Interestingly, in this draft guidance, HMRC states that making blanket IR35 decisions (i.e. that an entire workforce is caught by the off-payroll rules) does not constitute reasonable care – as this extract of bad practice demonstrates:
“Determining that every worker who provides their services through an intermediary is caught by the off-payroll working rules without giving any consideration to the specific facts of each individual case.”
How will a client work out your employment status?
Companies will take on the task of establishing employment status in different ways – using internal and/or external expertise. In all cases, they have to be able to demonstrate that reasonable care has been taken – to work out the status of each contractor.
They may use one or more of the following methods:
- Official or commercial employment status tools (including CEST – despite its limitations).
- Using HMRC guidance and established employment status principles, based on case law.
- Using a professional, qualified advisor.
Importantly, a client can only make an accurate IR35 status decision by looking at the whole picture of the assignment and the way it is carried out – including contract wording and working practices.
What happens if you don’t agree with the SDS?
If either you or your recruitment agency don’t agree with the SDS, then you need to inform the client.
The client has 45 days to respond, but significantly, there is no independent body to act as a referee. The client is under no obligation to change their mind, but they must let you know either way.
If the client doesn’t respond within this time period, they will assume the role of ‘fee-payer’ (if they don’t already do so).
What happens if your situation changes?
“If the working practices of the engagement change or you negotiate a new contract with the worker, you need to make sure that you re-check the rules to see if they still apply.”
- You can download a sample Status Determination Statement from Qdos here.
- Read the official guidance explaining what is expected of clients.