Status determination statement SDS

[edit] Introduction

From 6 April 2021, larger businesses face new duties under HMRC’s ‘off-payroll rules’ when they use individuals who work through their own limited company. In practice, this means that for those companies that have workers in their business who are there regularly, but not on the PAYE system because they are paid via other routes, it is vital to find out more and act accordingly. This is where the Status Determination Statement (SDS) comes into play.

[edit] What is SDS?

As a component of the Finance Bill 2020 (which amended IR35), the SDS became a requirement for the end user. When compiled correctly, an SDS documents the end user’s processes - and reasons - for deciding the employment status of contractors, whether that status is inside or outside IR35.

For the Status Determination Statement (SDS) to be valid, the end user must:

• State whether or not the worker would be an employee for tax and NIC purposes if they were directly engaged by the client.
• Provide their reasons for coming to that conclusion.
• Have taken reasonable care in coming to their conclusion.

[edit] Key details

Due to the significance of this term 'reasonable care', the Government has created an Employment Status Manual that can help end users understand the nuances of the phrase. HMRC’s Check Employment Status for Tax (CEST) tool can also be used to aid those making employment status decisions. A CEST test can be done anonymously, but if it shows that a worker is self-employed, it can be useful to log it with that person’s name and print a copy as evidence that the test was completed.

Status determinations that were made before 6 April 2021 can be valid SDS for projects that continue after 6 April 2021 as long as they meet the legislative requirements. An SDS must include the reason for reaching the conclusion and have been passed to the worker and any third party the client contracts with.

The SDS information should be reviewed every six months, since supply chain and subcontractors change frequently.

[edit] Related articles on Designing Buildings

• Construction Industry Scheme or IR35?
• Court of appeal ruling on holiday pay and employment status.
• Employee.
• IR35.
• IR35: essential steps for compliance.
• PAYE.
• Personal service company.
• Sub-contractor.

[edit] External resources

• Gov.uk, Check Employment Status for Tax.
• Gov.uk, Employment Status Manual.