IR35 Help: Understanding Status Determination Statements
IR35 (off-payroll) reforms in the private sector are due to come into effect on April 6th 2021.
IR35 (off-payroll) reforms in the private sector are due to come into effect on April 6th 2021. This means your agency will need to get to grips with many compliance challenges including Status Determination Statements.
From April 2021, off-payroll reforms are being introduced in the private sector which mean that the responsibility for IR35 status determination will switch from contractors to end hirers (unless those end hirers are considered ‘small’), with recruitment agencies facing liability for any unpaid tax. As you’re now at risk of HMRC challenge and financial liability, it is important you do everything you can to work with your customers to work compliantly with the new off-payroll rules, and an integral aspect of this is focusing on IR35 assessments and their resulting Status Determination Statements.
While this may sound complicated, JSA, an FCSA-accredited accountancy provider with an HMRC-compliant assessment tool, can help you with any queries and is able to outsource all IR35-related needs. If you work alongside JSA to manage your IR35 preparations and Status Determination Statements, you’ll be provided with a nominated Business Development Manager who can work alongside your agency to offer unlimited support, ensuring you get individual advice tailored to your contractors.
At JSA, the Business Development team is managed by Del Williams, a familiar face in the industry with over 10 years’ experience in contractor payments whose focus is on building long-term relationships with agency clients. Del and his team provide expert advice on compliance and other outsourced accounting matters, and, with JSA’s new in-house IR35 assessment tool, they can help you to develop an action plan for the upcoming off-payroll reforms, including how to manage SDSs and pass them on correctly to mitigate your risk of liability.
What is an SDS?
An SDS is a formal document that outlines a contractor’s IR35 status and the rationale that has been used for assessment. The document is the responsibility of the end hirer and it confirms the status of each assignment. It is issued to the next party in the contractual chain (which is usually the recruitment agency), directly to the contractor, and to the contractor’s PSC. It must outline the reasons for the decision (whether ‘inside’ or ‘outside’ IR35) and be able to prove that the end hirer has taken ‘reasonable care’ in arriving at the conclusion.
How does it affect your agency?
You can help your end user to handle status assessments and issue SDSs compliantly. It is essential to comply with the regulations around SDSs because a failure to pass on the SDS correctly can result in financial liability for your agency. A failure by the end user to issue the SDS can result in a financial liability for them, so by helping them comply, you will increase your value as a supply chain partner.
The assessment process
To ensure you’re managing SDSs compliantly, it is essential that an IR35 assessment is conducted using a reliable tool. The assessment should examine both the contracts in the supply chain and the actual working practices. There are three types of assessments which should be undertaken, depending on the type of contract, to ensure you remain compliant and avoid facing financial liability.
The first of these is an in-role assessment, which can be undertaken when a contractor is in place. This assessment type would be beneficial for those contractors who are working in long-term contracts and will remain in them until at least April 2021. If this is the case, you could begin encouraging end clients to start assessments now, and conduct regular re-assessments, to ensure they’re prepared when the reforms come into place.
The second assessment type is a role assessment. This is an assessment that can be undertaken to determine the ‘indicative’ IR35 status of a role before a contractor has been reappointed. This will be useful as we move closer towards IR35 and you begin placing contractors in new roles.
The final kind of assessment is a role re-assessment, which is a re-assessment of an assessed role to check that the actual working practices reflect the assigned status. Regular re-assessments should be taken at specified periods for roles that have already been assessed using both in-role and role assessments. This ensures maintained compliance as working practices change and assignments develop.
Qualities of a good status determination statement
It’s important for the end user to issue a good SDS backed by a solid status determination decision. If the SDS process isn’t followed correctly, the end user won’t pass liability down the supply chain compliantly. Additionally, as we move closer to April 2021, contractors will be discouraged from working with end users and agencies who aren’t assessing roles properly.
As an agency, you can identify a good SDS by checking it against these main criteria:
- It must confirm if the assignment being considered is ‘inside’ or ‘outside’ IR35
- It should say if the worker would be an employee or not, if they were directly engaged by the end user (without a PSC)
- It should state the reasons for the decision, considering factors such as right to substitution, control, and mutuality of obligation
- It should be sent to the next party in the supply chain (usually the agency and the worker/their PSC)It should be made using ‘reasonable care’.
The complexity behind the process of issuing and passing down the SDS document means that you need a company you can trust to assist in the process of completing assessments and issuing SDSs to end hirers, working alongside you to answer your questions and ensure compliance. With JSA’s IR35 Complete, you’ll benefit from instant assessments and advice on how to proceed with both ‘outside’ and ‘inside’ contractors. The quick and efficient nature of JSA’s in-house assessment tool means that whether you’re assessing your entire contingent workforce, or regularly re-assessing specific contractors, you can do so without a fuss and ensure that you’re completely compliant, with insurable outcomes for additional peace of mind. You’ll also be provided with an audit trail to prove you and your end hirer have taken ‘reasonable care’ when issuing the SDS. This will help you to defend against financial liability or challenge from HMRC.
If you’re looking for more information about IR35 assessments and SDSs, JSA have released an IR35 Guide for agencies with in-depth information for you to download and read at your leisure. Alternatively, you can visit their IR35 Hub to book a sample assessment and get a snapshot of where your agency stands and how you can start preparing for the off-payroll reforms.