IR35 status determination

IR35 is a tax law introduced to tackle tax avoidance by workers (sometimes known as 'consultants' or 'contractors') supplying their services to clients via an intermediary. An intermediary is a party who makes arrangements for or pays an individual to work for a third party who would otherwise be an employee.

Where IR35 applies, the fees paid by the client to the consultant are treated as employment income and subject to income tax and National Insurance Contributions. For more information, read IR35.

Since 6 April 2021, clients have needed to determine the employment status of a consultant every time they agree to a contract with a consultant or agency for services. This means that a consultant’s employment status will need to be determined every time a client takes on a consultant.

To determine a consultant’s employment status, all relevant facts need to be considered and evaluated and the basic features of the relationship established. Based on the facts of the nature of the relationship, the employment status should then be determined.

You should consider a variety of factors, including:

• Whether the consultant an office holder? 
• What the terms and conditions of the engagement are?
• What the nature of the consultant’s role is?
• What degree of control do you, as the client, have?
• Whether the consultant is ‘part and parcel’ of your business?
• Is the consultant regularly carrying out the work?

For more information, see IR35 status determination.

Once the status of a consultant has been determined, this needs to be communicated to the consultant. This is done using a Status Determination Statement (SDS), which must be given to the consultant and the persons or organisations they contract with (ie an agency).

The SDS must give a conclusion on the consultant's employment status and the client's reasons for coming to that conclusion.