Tips for Contractors: Ensure You Have A Fair Determination
How To Make Sure You Have A Fair SDS
IR35 (off-payroll) reforms are due to come into effect in April 2021. While the rule changes mean that it will be the end hirer’s responsibility (unless they are considered ‘small’) to determine your IR35 status and issue you with a Status Determination Statement (SDS), you still need to be aware of the changes and ensure you receive a fair SDS.
As we approach April 2021, all ‘non-small’ end hirers will begin to assess contractors’ current assignments to ensure they are working compliantly and paying the correct tax contributions. Failure to do so could mean that the end hirer and employment agency face liability for unpaid tax if the incorrect status is challenged by HMRC.
As the responsibility will no longer fall on you to manage your own employment status, you will need to speak to your end hirers/agencies to find out how they plan to manage and determine your IR35 status. It’s in your best interest to ensure that you receive a fair determination and are working compliantly for two reasons:
- If your SDS places you ‘inside’ IR35 but you cannot guarantee you were fairly assessed, you could risk losing out on take-home pay. Some end users may attempt to incorrectly class you as ‘inside’ IR35 to mitigate their risks and tax liability. If you are classed as ‘inside’ IR35, correctly or incorrectly, this will mean you will have to switch to a working option such as Umbrella or PAYE, meaning you will have more tax to pay as a proportion of your rate. (However, don’t be put off by this, with JSA, we provide contractors with the option to toggle between ‘inside’ and ‘outside’ IR35 assignments. You can work through a mixture of JSA Umbrella and your own PSC compliantly to enjoy the flexibility of contracting and maximise your take-home pay – contact us to find out more).
- If you are issued an ‘outside’ IR35 SDS, ensuring this has been made fairly according to HMRC’s regulations is essential. This will guarantee you’re working compliantly and mitigate risk throughout the entire supply chain.
If you’re unsure where you stand, speak to us to get assessed using JSA’s in-house assessment tool. We can provide you with an accurate and insurable SDS and a compliant working solution, so you can have peace of mind that your SDS has met the necessary criteria and ensure you’re doing your due diligence to guarantee the supply chain is compliant.
Criteria for a fair Status Determination Statement
There are a few qualities that all SDSs (whether in-role assessments, role assessments, or role re-assessments) should have to prove that your status is accurate, and the assessment has been fair. To determine if an assignment is ‘inside’ or ‘outside’ IR35, it is necessary to examine both the contracts in the supply chain and the actual working practices.
The SDS must state whether you, the worker, would be an employee or officeholder for tax and NIC purposes if directly engaged. It must outline the reasons for that decision to demonstrate that the end hirer has taken ‘reasonable care’ at arriving at the conclusion – whether ‘inside’ or ‘outside’ IR35.
When you receive your SDS, check for the following criteria to determine whether it has been made fairly:
- It must confirm whether the assignment being considered is ‘inside’ or ‘outside’ IR35.
- It must say whether you would be an employee or not if you were directly engaged by the end-user (without a PSC).
- It must state the reasons for the decision – such as the level of control in place or the amount of Mutuality of Obligation present in the relationship
- It must be made using ‘reasonable care’.
- It must be sent to you and the next party in the supply chain (usually your agency) by your end hirer.
If you feel your SDS is unfair
If you find that you receive an ‘outside’ IR35 determination which has met all of the criteria above, this means you can continue to work through your PSC and provide your services as normal with no extra tax to pay.
Even if you do receive an ‘outside’ determination, we recommend speaking to your end hirer or agency ahead of the reforms. If they are concerned about continuing to work with you due to your ‘outside’ IR35 status, they can mitigate their risk by using an assessment tool, like JSA’s IR35 Complete, which provides insurable SDSs that meet HMRC’s legislation. If end hirers choose to insure your ‘outside’ status, you can continue to work compliantly through your PSC, and they have peace of mind that they won’t face liability if your status is ever challenged by HMRC.
However, if you receive an SDS that you believe has been made unfairly, whether ‘inside’ or ‘outside’, you can challenge it. You must do this in writing (either via post or electronically), and you must include your rationale and reasons why you think that your status is incorrect. Your end hirer has a legal obligation to respond to your challenge within 45 days of receiving the dispute to help them prove they have taken ‘reasonable care’ when issuing the determination.
Please note that if you wish to challenge your SDS, you must do so before the final chain payment has been made. After this point, the ‘dispute window’ has closed, and your end hirer is no longer required to respond to your challenge.
If your SDS changes following your challenge, then the original status should be withdrawn, and your end hirer should communicate the changes to all other parties in the supply chain.
How we can help
At JSA, we have an in-house assessment tool which provides insurable SDSs that meet HMRC’s requirements and are aligned with established case law. If you haven’t discussed with your end hirer how they will approach the IR35 reforms, and your current contract will continue beyond April 2021, consider approaching them now or getting in touch with us to assess your contract. Having a discussion with your end hirer before the reforms are implemented will give you both peace of mind that your IR35 status determination will be dealt with fairly and accurately, so you can both operate compliantly and feel confident in your status. This will allow you to continue working through your PSC as much as possible, and toggling to JSA’s Umbrella solution where necessary.
If you would like to find out more about IR35 and our toggle solution, get in touch with a member of our team – we’ll be happy to answer any questions you may have.