IR35 and status determination statements
1 September 2022
I have had quite a few conversations with clients recently relating to correspondence they have received from their end user clients. Sadly, many are being told that they will either need to become employees or more likely that they must go through an Umbrella company if they wish to continue contracting.
Where I have spoken with clients that have received Status Determination Statements (SDS’s) from their clients, I have the following thoughts:
- The SDS being provided is not giving specific reason for the decision. The SDS is required to be given to all contractors working through a Personal Service Company (PSC) giving a decision as to how the contractor will be treated after 6 April 2020. If the contract is held to be inside of IR35, then PAYE and National Insurance will be deducted from the contract income. The SDS should state the reasons for the decision which does not appear to be happening.
- There appears to be a blanket approach to the process with engagers taking the “you must be caught” stance. This could be due to a lack of understanding of the factors to be considered in making an informed decision.
- Agreed contracts appear not to be taken into accounts. We all know that a contract might be written to get around IR35 but this really should be the first port of call and should not be ignored in the process. Of course it should be the actual work practices that are used to make the final decision but one might hope that the contractual terms might reflect this.
- In answering the Check Employment Status for Tax Tool (CEST), the end client might not be answering the questions in the same way as the contractor. You should check this if CEST has been used to make the decision as those making the decisions have been advised to do. I had a recent client saying the client had answered the question, If you were meeting a customer of your clients would you say you were an employee of the client? This was answered yes by the client? The contractor would never hold themselves out as being an employee and so would not have answered in this way.
If you have an SDS stating you are in the opinion of the engager you are caught by IR35, this is not the end of the matter. Firstly, this is a positive thing as it gives us a chance to plead our case and shows the client still wants to use PSC’s to carry out contracts for them. Please get in touch with Lambert Chapman LLP and we can, firstly see if we agree with the SDS and secondly, assist you with a response to your client if we don’t agree.
You can request clarification on a SDS decision and ask specific questions of your client and request a change of opinion.
In the opinion of the author. This is a very complex area of legislation based on case law. HMRC are expecting your client to make a decision that might well be outside their area of expertise and one can quite understand why they might take an easy option of stating the PSC is caught.
If you need any assistance or if you have any questions about this – please get in touch with Duncan Forsyth at our London office – 0207 613 8161.