A Status Determination Statement (SDS) is a formal document that confirms the IR35 status of a contractor engagement under the Off-Payroll Working rules (Chapter 10, ITEPA 2003).

It is a legal requirement for medium and large businesses, as well as all public sector organisations, engaging contractors through intermediaries such as personal service companies (PSCs).

The SDS must be issued before or on the date of the first payment under the contract and shared with:

• The contractor (worker), and
• Any other party in the supply chain that the client contracts with (e.g. an agency).

If the SDS is not issued or not passed on correctly, the liability for tax and National Insurance Contributions (NICs) may fall back on the client.

What should a Status Determination Statement include?

A valid SDS must:

• Clearly state whether the contractor is “inside IR35” (subject to PAYE tax and NICs) or “outside IR35” (genuinely self-employed for tax purposes).
• Provide detailed reasons and evidence to support the determination, considering both contractual terms and actual working practices.
• Be issued using “reasonable care”, as required by HMRC. If reasonable care is not taken, the SDS will not be valid, and the client could be liable for unpaid taxes.

You can read more about the core status tests to be considered when making a status determination (such as control, substitution, and mutuality of obligation) in our IR35 guide for engagers.

Why is the Status Determination Statement so important?

Issuing a robust SDS is crucial for IR35 compliance. It protects the client from financial risk, ensures fairness for contractors, and demonstrates that the engager has taken its Off-Payroll Working responsibilities seriously.

Without a valid SDS:

• HMRC may challenge the IR35 position of any contractors you engage.
• The client or fee-payer may be liable for tax and NICs.
• Disputes with contractors may arise, affecting engagement relationships.

What if a contractor disagrees with the SDS?

Contractors have a legal right to challenge a status determination statement through a client-led disagreement process, and you must respond to any appeal within 45 days. Failure to respond will result in the client retaining liability, even if your original decision was made with reasonable care or another party is responsible for paying the contractor.

When is a new SDS required?

A new Status Determination Statement should be issued if:

• A contract is renewed or materially changed.
• Working practices change or evolve during the engagement.
• A new engagement begins – even with the same contractor.

However, if the terms and working practices remain identical, a new SDS may not be necessary, though it’s good practice to review status regularly if you engage contractors on longer-term contracts.

What happens in complex supply chains?

If there are multiple parties (e.g. agencies) between the client and the worker’s PSC, the SDS must be passed down the chain by each relevant party. If it is not, the liability for PAYE and NICs stays with the party that received it but failed to pass it on.

Remember: Only the client is responsible for making the determination and issuing the SDS to the worker and the first party below it.

Do you need help with producing compliant SDSs?

At Bauer & Cottrell, we provide fully compliant, detailed and defensible Status Determination Statements as part of our IR35 Status Determination Service.

For organisations seeking a broader review, our IR35 Compliance Audit can assess your current procedures, contract terms, and SDS processes to ensure everything would stand up to HMRC scrutiny.

Visit our IR35 Hub for further IR35 / Off-Payroll Working guidance.

 Browse our full range of services for engagers here.