Contractors’ Questions: Can my client shift its SDS responsibility to a third party?
Contractor’s Question: An agency body has told me that one of the technical tweaks to the now applicable new IR35 legislation concerns the Status Determination Statement (SDS), as apparently under the change, HMRC has confirmed that the client remains responsible even if they subcontract the SDS.
But I can’t locate where it says that, or anything else about the SDS in the HMRC document on the technical changes. And anyway, what are the likely practical upshots of this – assuming the agency body is correct? Perhaps nobody turning to proper employment status specialists, and clients just sticking to CEST?
Expert’s Answer: Under the private sector IR35 reforms, which were introduced yesterday, the end-client is responsible for carrying out IR35 assessments and issuing the SDS. Whether or not the business has engaged a third party to support them with IR35 determinations (and even issue them on their behalf), bears no relevance whatsoever.
Important ESM update answers your question
As the government’s recently update Employment Status Manual states, for a business to have carried out a compliant IR35 assessment, it must ensure it “checks and reviews processes of other parties where it subcontracts the determination process to another party. The client remains responsible for the accuracy of the SDS even if it subcontracts that responsibility to another party.”
While I can only speak from our own experience, the fact that the end-client shoulders this responsibility has had little impact on their decision to engage a specialist, like us, to help them implement reform.
Where SDS comes in, and what a compliant SDS looks like
We believe that providing clients with a robust SDS audit trail is a small - albeit significant - part of the range of services that businesses should be offered. Whether it’s audits, strategy and planning, stakeholder communications, IR35 contract reviews or working practices reviews, a lot of additional work goes into managing IR35 reform compliantly. In many cases, this is the reason why businesses engage external IR35 specialists.
An SDS is the document sent to contractors and the second party in the supply chain, to inform them of the deemed status and demonstrate that the assessment has been made with ‘reasonable care’. For it to be compliant, it needs to include the contractor’s IR35 status and a detailed explanation of the reasons contributing to this particular decision.
Behind the scenes matters
While a well-structured SDS is absolutely vital, the work that goes on behind the scenes leading up to this point matters just as much. So to recap, the end-client is responsible for the SDS even if an independent party has been engaged to support them and, as far as I’m aware, it has had little to no impact on whether or not a client outsources its IR35 processes to a third party.
The expert was Seb Maley, CEO of IR35 specialists and off-payroll rules advisory Qdos.