IR35 Status Determination Statement: What It Must Include

A Status Determination Statement, usually abbreviated to SDS, is the document a medium or large client must produce to explain whether a contractor's engagement falls inside or outside IR35. Since April 2021, responsibility for making this decision sits with the client rather than the contractor's own company, for any client that is not a 'small company' under the Companies Act test.

Who has to issue an SDS

Medium and large end clients engaging contractors through personal service companies must produce an SDS for each engagement, and pass it down the labour supply chain to the fee payer and the contractor. Small clients are exempt from this obligation — in that case the contractor's own company remains responsible for determining its own status, under the older pre-2021 rules.

What a valid SDS must contain

• A clear conclusion: whether the engagement is inside or outside IR35.
• The reasoning behind that conclusion, addressing factors such as control, substitution and mutuality of obligation.
• It must be based on 'reasonable care' — a generic, copy-paste determination that ignores the specifics of the role can be challenged as invalid.

If a client fails to take reasonable care in reaching its determination, or fails to pass the SDS down the chain, responsibility for any resulting tax liability can shift back up to that client — which is precisely the outcome clients are trying to avoid by doing this properly.

Challenging an SDS you disagree with

Clients must operate a client-led status disagreement process. If you believe your SDS is wrong, you can submit your disagreement in writing, setting out why. The client then has 45 days to respond — either upholding the original determination with reasons, or issuing a new one. Until the client responds, the original SDS and its tax treatment continue to apply.

Practical points for contractors

• Request the SDS in writing before agreeing to the contract, so you know the tax treatment before you start.
• Keep a copy of every SDS you receive, alongside the underlying contract, for your own records.
• If your day-to-day working practices do not match what the SDS describes, that mismatch is exactly the kind of evidence needed for a disagreement or, if things go far enough, an HMRC enquiry.