IR35 Update for Hirers: Status Determination Statements

If you hire off-payroll workers, such as contractors and freelancers, you will be interested to know that HMRC has released further details about how your business will be expected to clarify and record the status of these external suppliers.

The company hiring the worker will be obliged to issue a Status Determination Statement (SDS) when the updated legislation comes into force in April next year.

Why is an SDS needed?

In the past, under IR35, many workers were being told that they were to be considered an employee for tax purposes without being given any information on how or why that decision had been reached.

Under the new rules, the hiring company must issue an SDS to the Off-Payroll worker which confirms the IR35 Status of the relevant role and provide reasons for the decision. The end hirer is obliged to take reasonable care in deciding the status of the worker and the requirement to provide an SDS is designed to discourage organisations from taking a blanket approach, as discussed in our previous article on IR35.

How to determine status

One reason for a blanket approach, where contractors are automatically treated as employees, is that hirers simply do not have the resources to determine status accurately. Under the new rules, in-house resources will have to be used to create a statement which demonstrates that reasonable care has been taken in assessing the status of Off-Payroll workers. If organisations don’t have this capability within the business, they will have to seek support from an external IR35 specialist. A process must also be provided whereby a contractors can challenge the decision.

With so much work needing to be done to comply with IR35 next spring, organisations are being advised to start preparing now to make sure their SDS systems and processes are in place and fully functional before the new rules come into force.

For more information about Off-Payroll working contact Boardside on 01423 594 880.