In light of reforms to the off-payroll rules coming into force in both the public and private sectors from April 2021, the end client will be obliged to provide the contractor with an official Status Determination Statement (SDS). The statement must confirm whether an engagement is inside or outside of IR35 and provide an explanation for this decision.
The legislation further obliges the client to pass the SDS to the party it contracts with, in the supply chain and to the worker of the limited company at the end of the chain. Until the end client has passed the SDS to the worker and to the next party in the chain, then it is classed the ‘fee-payer’ for the purposes of the legislation, and is responsible for all potential liabilities associated with being the ‘fee-payer.’
The legislation does not specify how the statement must be laid out, nor does it stipulate how the status determination should be arrived at. Although the legislation states that reasonable care must be taken in making the determination, it does not provide any definition of “reasonable care”. Reasonable care could be expected to include examining the working arrangements of each individual contractor in relation to key determination tests such as Right of Substitution, Right of Control, and Mutuality of Obligation. However, this has not stopped clients introducing various forms of blanket determinations. (For more information on what to do if you’re blanketed see here).
Can I challenge the determination?
If you feel the status determination does not fairly reflect your working practices and the agreement you have in place with the end client, then yourself or the fee payer can enter into a formal disagreement process. The legislation does not provide prescriptive steps on what the disagreement process should look like. Instead, HMRC guidance simply says that the end-client should consider the dispute and provide a ‘reasoned response.’ To this end, the disagreement process is ‘client-led,’ and does not provide for independent arbitration.
When disputing the determination, 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 the explanation demonstrates how the statement differs from any legal documentation or working practices in relation to the key status tests. For this reason, it is often best to have a professional who understands employment law undertake an independent review.
Once the dispute has been submitted, the end client will have 45 days to respond, during which time the existing determination will remain in place. They are obliged to provide a summary of the outcome of their findings, and if this results in a change in IR35 status then a new SDS should be provided. If the end hirer fails to provide a response to either the fee payer or worker within 45 days, they will become legally liable for calculating and making the deductions for employment taxes from the fee payer to the end hirer. It is therefore important that this process is managed effectively by the end hirer.
While HMRC have confirmed that an SDS produced prior to April 6th 2021 will be valid, the legislation underpinning the disputes process is not yet active. This means that disputes may have to be repeated for any SDSs produced prior to April 6th (for engagements which started prior to this date). This could have significant implications for end-clients who could find themselves hit with a large number of disputes come April 6th 2021 with only 45 days to respond.
This content has been supplied by IR35 Guru
If you’ve been affected by the Off-Payroll reforms, or if you’re unsure about your employment status, ContactingWise can help you make sense of your options. For an overview of IR35 and the off-payroll changes ahead, read our free guide here. We have a range of hassle-free services that can help you re-open your limited company, or find the right umbrella company for you. To talk to a member of our team, call: 0203 642 8679