What Is An SDS & Can I Challenge it?

What Is An SDS & Can I Challenge it?

Jan 20, 2021

From 6th April 2021 there will be new obligations and risk on Private Sector hirers to provide a summary of their IR35 decision that must:

  • Advise on the employment status for tax
  • Detailed reasons as to how the decisions were made
  • Be communicated to agency and worker
  • Must be prepared with ‘Reasonable Care’ – HMRC have defined reasonable care here

This summary of the hirer’s decision is referred to as a status determination statement (SDS).

Such assessments have already been required in the Public Sector since 2017.

In order to prepare an SDS with reasonable care, most hirers will use an SDS tool such as the Governments own “CEST” tool (which can be time-consuming and often offers no clear decision) or an independent insurance backed tool such as IR35 Complete™ to obtain answers to the key employment status determination questions and deliver a clear decision.

As part of the IR35 assessment process, all end hirers are obliged to offer contractors a clear process for challenging end determinations. This process can be followed either by the entity paying the PSC (the Fee Payer) or by the contractor themselves if the status determination does not fairly reflect your working practices and the agreement you have in place with the hirer.

When disputing the SDS, the contractor or Fee Payer will need to clearly demonstrate which aspects of the SDS they disagree with, and provide evidence to support their dispute. It is important that explanations of any differences clearly demonstrates how the original SDS differs from any legal documentation or working practices in relation to the key status tests.

Once the process has begun the hirer has 45 days to inform the worker or Fee Payer whether the decision can be overturned or not. If the SDS conclusion can be overturned the hirer needs to provide a new SDS with its revised supporting information within that timeframe.

If the hirer fails to provide a response to either the Fee Payer or the contractor within the 45 days they will become legally liable for calculating and making the deductions for employment taxes from the Fee Payer. It is therefore vitally important that this process is managed effectively by the hirer.

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