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HMRC introduce status determination statements

HMRC introduce Status Determination Statements

Status Determination Statements (SDS) have been introduced by HMRC as part of the IR35 process that end clients will adopt from April 2020. The draft off-payroll legislation specified that an SDS must be carried out for each separate engagement and must also contain the client’s rationale for making their decision on the contractor’s employment status.

The SDS has met with a mixed response from IR35 advisors. Generally, the statements are thought to be a better option than the previous ‘conclusion’ statement used in the public sector. In theory, they should provide a more adequate explanation of the status determination from the outset. However, critics say that an SDS only offers the same capacity for vagueness, while also creating additional work and complications.

The SDS triggers the additional responsibilities for the client to relay it down the supply chain to the PSC or agency and deal with any appeal made by the client within 45 days. Although in theory the SDS will increase transparently around the assessment process and prevent so called ‘blanket decisions’, there’s considerable doubt that it will achieve this in practice.

HMRC offer no guidance on how much detail the SDS must go into, and there’s little to prevent the client adopting a ‘copy and paste’ approach. The client ‘complies’ simply by providing the decision with accompanying reasons. Although they are required to review the SDS if a contractor disagrees with it, the legislation does not go on to say what happens if the worker is still not satisfied, so the decision is then further postponed by another 45 days.

This could end up with a lengthy deferral process as part of a disputes procedure that is not clearly enough defined. HMRC’s reluctance to step in at any stage and arbitrate will inevitably create an administrative burden for the client with the likelihood of delays to assignments as businesses struggle to interpret the legislation.

Until the status determination is made and passed to the agency, the end client will stand in the position of fee-payer, meaning that they will be responsible for ensuring the correct tax and NI deductions are made with associated liability. This is likely to instigate another kind of blanket decision where clients avoid using any affected company contractor so that they don’t have to apply the rules in the first place.

Contractors should inform themselves on reforms to the off-payroll rules that will apply in both the public and private sectors from April 2020. For an overview, read our guide here.

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