MAKE YOUR FREE IR35 Status determination statement

A status determination statement is a document issued by the client (ie the person engaging the worker) which states the worker’s employment status (either as an employee or as self-employed) for IR35 purposes. IR35 is a law that tackles tax avoidance by workers supplying their services to clients via an intermediary. The status determination statement also provides reasons for reaching this conclusion.

Use a status determination statement when you are determining a worker’s (also known as a 'consultant' or 'contractor') employment status for IR35 purposes. This status determination statement allows you to set out whether the worker is inside or outside of IR35 (ie whether they are classed as self-employed or as an employee for IR35 purposes).

Use this status determination statement:

• when you are determining a worker’s employment status for IR35 purposes

• where the worker is providing their services through an intermediary (ie a party who makes arrangements for or pays an individual to work for a third party who would otherwise be an employee)

• where you are based in the UK

This status determination statement includes and covers:

• a cover letter

• the worker’s details

• the client’s details 

• the details of the person responsible for completing the status determination statement

• the worker’s status

• the reasons for the worker’s status

• whether the government’s CEST tool made a status determination

• appeals

• how often the status determination statement will be reviewed

• who will receive a copy of the status determination statement

From 6 April 2021, clients will need to determine the employment status of a consultant every time they agree to a contract with a worker (or agency). For more information, read IR35.

Self-employed workers (also known as ‘consultants’ or ‘contractors’) tend to provide their services through a limited company intermediary, known as a personal service company (or 'PSC'). An intermediary is a party which makes arrangements for or pays an individual to work for a third party who would otherwise be an employee. For more information, read IR35.

To determine a worker’s employment status for IR35 purposes, all relevant facts need to be considered and evaluated. Clients should consider a variety of factors including:

• whether the worker is obliged to accept work provided by the client

• whether the client is obliged to provide work to the worker

• whether the worker has a right to appoint a substitute, and

• the degree of control the client has over the worker

For more information, read IR35 status determination.

When determining a worker’s status, clients should use HMRC’s CEST (Check Employment Status for Tax) service, which helps clients identify whether workers should be classed employed or self-employed for tax purposes. HMRC will stand behind a CEST decision, unless a compliance check finds that the information provided is not accurate. 

If HMRC’s CEST service cannot make a determination as to the worker’s employment status, the client will need to use an alternative method to make such a determination (eg seeking assistance from a specialist advisor). Where CEST could not make a determination, this should be expressly in the status determination statement as evidence that the worker’s engagement required further consideration.

The CEST report must be attached to the status determination statement as evidence of the determination.

The client’s answers when using the CEST service, along with the overall determination outcome, should be stored with the relevant tax records for future audit purposes.

Status determination statements should be made and reviewed on an ongoing basis. The client should have a review process in place, revisiting status decisions on an ongoing basis and making new decisions where:

• changes are made to the working practices

• changes are made to the contractual arrangements

• contracts are renewed

• new contracts are entered into

If the worker becomes aware of any relevant changes which may affect the status determination statement, they should make the client aware of this as soon as possible. For example, any changes to the worker’s working practices.

A copy of the status determination statement must be sent to the other parties the client contracts with, regardless of the determination’s outcome. This will always include the worker and either:

• the worker’s personal services company, where the client and worker contract directly through this company, or

• the agency, where the worker provides their services via an agency

• the fee-payer (ie the party paying the worker), where the client or agency do not pay the worker

• any other organisations the client contracts with as part of a complex supply chain

It remains the client’s responsibility to deduct tax and National Insurance contributions until they tell the worker and, where relevant, the other parties they contract with, the status determination and the reasons for it.

Failure to provide the relevant parties with the status determination statement results in the client becoming liable for the worker’s tax and National Insurance contributions.

If the worker disagreed with the status determination statement, they should appeal to the client. Such an appeal can be raised until the last payment is made for the worker’s services.

Once an appeal has been made, the client has 45 days to respond. While the client should consider any appeals received, they are under no obligation to change their mind regarding the determination. However, the client should let the worker know the outcome of the appeal, regardless of whether or not  they changed their remind.

Failure to respond to an appeal within the 45 days, results in the client becoming liable for the worker’s tax and National Insurance contributions.

The cover letter provides the worker and the party with which the client contracts (ie the PSC, the agency or the fee-payer) with a brief overview of the status determination carried out by the client and its result.

Ask a lawyer if:

• the document doesn't meet your needs or cover what you want

• you need specialist advice

• you cannot determine the worker’s employment status

• the client is part of a complex supply chain

This statement of work is governed by the laws of England and Wales.