IR35 and making a Status Determination Statement : all you need to know.
As at the date of writing (9th March 2020) it is widely accepted that the UK government will continue to roll out the revised changes to IR35 rules across the private sector as planned on 6th April 2020.
As these changes come into law, it will now become imperative for the engager (the end client) to make a Status Determination Statement (SDS)
What is the SDS?
Under the new IR35 rules, the engager must decide whether each of their service company suppliers (Personal Services Company or Contractor) are caught by IR35 or not. They can use HMRC’s online tool called CEST, to establish this.
The engager must notify the supplier, in a status determination statement (SDS) whether they are caught by IR35. This SDS should also explain the reasons. If the engager doesn’t provide an SDS then the engager will always be liable for IR35 duties.
Making a Status Determination Statement (“SDS”)
The requirement to issue a SDS for each Contractor only impacts medium/large businesses, defined as generating more than £10.2M revenue per year; have more than £5.1M of assets, and/or have more than 50 employees.
The new procedure will not impact employment agencies or umbrella companies where the Contractor is already subject to PAYE/NIC.
Once a Client issues a reasoned SDS in writing, the liability to operate PAYE/NICs in respect of the Contractor passes to the next person in the supply chain between the Contractor and Client.
The SDS must be issued by the Client both directly to the Contractor performing the services and to the person that is providing the Consultant’s services to the Client (the intermediary).
When making a SDS, as a minimum it must be in writing, but many companies will be using an online tool, such as the HMRC tool CEST (check employment status for tax). We have overviewed an alternative tool with Advance (Ernst Young). A SDS can also be raised by suitably training internal resource or outsourced. HMRC will stand by their SDS, subject to the correct information being provided (as with all online tools).
To determine the status of each assignment there must be a contract in place, and before using an online tool, you will need to know:
- The details of the contract (including can it be extended, notice, working hours, location)
- The Contractors ’s responsibilities (including if there is a right to substitution)
- Who decides what work needs doing (being aware of control and direction)
- Who decides when, where and how the work is done (is there mutuality of obligation)
- How the Contractor will be paid (financial risk)
- If the assignment includes any corporate benefits or reimbursement for expenses, provision of equipment etc.
- You will need to be able to identify all the parties in the supply chain, providing names and addresses and description of role in the supply chain (i.e. Contractor’s PSC, recruitment agency).
- You must use reasonable care in making the SDS.
- Copies of all SDS must be kept, and the SDS repeated around 6-9 months, or at the beginning of any new contract/extension.
- Right to appeal the SDS is 45 days, and should be client-led.
Making an recording SDS correctly will become an important part of any compliance team’s process going forward and at Skillfinder International we are preparing for these changes early.
Who do the new rules apply to?
From 6th April 2020 medium and large-sized private sector clients:
The rules apply to all public sector clients and private sector companies that meet 2 or more of the following conditions:
· you have an annual turnover of more than £10.2 million
· you have a balance sheet total of more than £5.1 million
· you have more than 50 employees
Balance sheet total means the total amounts shown as assets in the company’s balance sheet before deducting any liabilities.
Also, another update from HMRC’s review published on 27th February 2020: Where the client is based wholly overseas, with no subsidiary or presence in the UK, the new off-payroll working rules will not apply, and the obligation to determine tax status falls back on to the contractor’s limited company.
Photo by Anna Shvets