What is a Status Determination Statement (SDS)?
So, what is a Status Determination Statement (“SDS)?
HMRC have confirmed that when the new Private Sector Off-Payroll Working Rules come into play in April 2021, End-Hirers will have an obligation to issue SDS’s down the supply chain and to each off-payroll worker.
This is one of the main changes to be made to the legislation when it is introduced in the Private Sector in April 2021. There is no prescribed form for an SDS, however, we know that End-Hirers must:
- Confirm the IR35 Status of the role and provide reasons behind the decision;
- Pass the SDS to the next entity in the supply chain and to each Off-Payroll Worker;
- Crucially, an SDS is not valid if the End-Hirer fails to take reasonable care in coming to the conclusion mentioned in it.
This means that End-Hirers will need to find an alternative to CEST, if they are to comply with their new obligations. CEST has many well publicised flaws, one of them being that there is a question mark on whether it demonstrates reasonable care, as it omits crucial elements of employment status case law from its decision making matrix, another is it can tell you if it believes a role is Inside or Outside IR35, but it will not provide any supporting information. Therefore End-Hirers will need to decide if they have the resource inhouse to enable it to demonstrate reasonable care in assessing the status of Off-Payroll Workers, or if it will need to engage the services of IR35 specialists.
What is the purpose of an SDS?
When the Off-Payroll Working Rules were rolled out in the Public Sector there was no requirement to communicate to a worker, in respect of how an IR35 determination was reached. This left many workers frustrated, as they were being told that they were considered an employee for tax purposes but not provided with any rationale as to why. Basically, Off-Payroll Workers were told “You are inside IR35, take it or leave it”, leaving them with only two options. 1) Continue to provide the services and take a huge hit on take-home pay or 2) Look for work elsewhere and most probably in the private sector. Some workers didn’t even have the luxury of the second option as their skills and expertise could not be transferred to the Private Sector.
Another reason behind the introduction of the SDS is to prevent organisations adopting blanket determinations and categorising a whole (or sections of its) workforce within IR35. This again was a practice adopted by some Public Sector organisations. By including a requirement for End-Hirers to justify their decision, this goes some way to help ensure that End-Hirers put thought into the status of each role and don’t make off-the-cuff decisions, such as “let’s just treat all contractors as inside IR35”.
By informing the Off-Payroll Workers of the rationale behind the status of a role, this provides the worker with an opportunity to challenge the determination and put forward additional supporting evidence. This should help workers accept a determination and will ease some of the concerns and frustrations workers encountered in the Public Sector.
Not only do End-Hirers need to produce an SDS and supply it to the next entity in line and each worker, End-Hirer’s must also incorporate a challenging process which is made available to contractors to allow them to challenge determinations. The challenge process can be initiated by either the Fee Payer or worker and provides for a 45-day period, which before this period lapses, an End-Hirer must inform the worker or Fee Payer if the decision cannot be overturned or, if it can, provide to the worker or Fee Payer a new SDS with a new determination and supporting information.
In the event that the End-Hirer fails to provide a response to either the Fee-Payer or worker within 45 days, this has the effect of transferring the liability for making deductions for employment taxes from the Fee-Payer to the End-Hirer. Therefore, it is important that this process is managed effectively.
Brookson Legal Services can be instructed to assess the status of off-payroll workers and as part of this process will issue End-Hirers with SDS’s to provide to affected workers. Brookson Legal Services can also be instructed to take ownership of your challenge process. For more information please feel free to contact Brookson Legal Services on 0345 058 1227 or email [email protected].