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IR35 Reform: Why a Good SDS is Useful to Contractors


Following the reform of IR35 in April 2021, end clients will have to issue a status determination statement (SDS) before each contract begins. They’re not a legal requirement yet, but they are already being issued by some end clients. This is good news for contractors, because a good SDS can be very useful, giving you information about where you currently stand, and pointing you in the direction of any action you need to take.  

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What is an SDS?

An SDS is a formal document issued to contractors and agencies by the end client, giving their assessment of the contractor’s IR35 status – whether they are “inside” IR35 and “employed for tax purposes”, or “outside” IR35 and “in business on their own account”. It should also give the reasons for the decision, as evidence that reasonable care has been taken in completing the assessment, as required by the legislation.

When does IR35 status need to be assessed?

Once the reform comes into force, an IR35 status determination should be completed and the SDS sent to all parties before each new contract commences. However, the reality is unlikely to be that simple.

In practice, there are three points at which assessments will be necessary:

  • Role-based assessment. This will take place before you accept the contract, and will indicate the likely IR35 status, given the information the client has at the time. This will allow informed discussion during recruitment.
  • Re-assessment. Once you’ve accepted the contract, it will be necessary to re-assess, taking into account your individual circumstances and ensuring the working practices line up with the assigned status. Re-assessments should also take place whenever the contract is extended.
  • In-role assessment. This will take place while you’re already working in the role. There are likely to be a great many of these in the run-up to April 2021, and immediately after the reform comes in.

 What will a good SDS look at?

A good SDS will state whether or not you are deemed to be employed for tax purposes, and give detailed reasons for that decision. The criteria for deciding IR35 status have not changed, and any IR35 determination should look at the whole picture, rather than deciding based on one factor alone.

There are three major factors that affect your IR35 status, and there are several minor factors that may have an effect. As you might expect, the major factors carry much more weight than minor ones.

Major factors:

Mutuality of obligation: MOO is the extent to which you and the client are obligated to each other on an ongoing basis. If the client is obliged to provide paying work, and/or you are obliged to accept work when offered, you’re more likely to be inside IR35.

Control: This comes under the four categories of what, where, when and how. The more control the client has over the services you supply, the more likely you are to be inside IR35. However, if there is an operational reason why you have to work at a particular location or at a particular time, it doesn’t always indicate control.

Personal service/substitution: The question here is whether you have to provide the services yourself, or whether you would be able to send a suitably qualified substitute. A right to substitution can be a strong indication that you’re outside IR35.

Minor factors:

There are many minor factors that might have an effect on your IR35 status, depending on your circumstances, but the most common ones are:

Financial risk: Accepting financial risk makes you more likely to be outside IR35. Is there a financial penalty if you don’t complete the work in time? Do you have to correct mistakes at your own cost? Do you invest in materials? Do you have your own insurance?

Behaving like an employee: Does the client sign off your holiday? Do you attend staff meetings and training? Are you including in their appraisal process? Do you get paid when you’re off sick? These are indicative of employment, and make you more likely to be inside IR35.

Why a good SDS is useful to you as a contractor

A good SDS will give you your client’s assessment of your IR35 status, and their reasons for coming to that decision. This should reassure you that the client is using a thorough and robust process for determining status, but it’s useful for other reasons too.

An “inside” result

As long as the SDS contains sufficient detail, an inside IR35 determination at this stage will give you targets for changes to your contract and-or working practices. Importantly, it also gives you time to take the necessary action. A well-informed client will want to work with you to help you work outside IR35 where possible.

An “outside” result

If your client has assessed you as being outside IR35, this is likely to be strong evidence in support of your status, should it be challenged by HMRC. Again, this is reliant on their having taken reasonable care, and the more detail it contains about the reasons for the decision, the more useful it will be.

Until April 2021, your IR35 status is still your responsibility. Even where your client has determined that you’re outside, we would still advise you to obtain an IR35 assessment from an independent expert, and gather supporting evidence as a matter of routine.

If you have any questions or if we can help in any way, please call our expert team on 01296 468 483 or email

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