How do you determine IR35 status?

Determining IR35 status is a complex process that requires a thorough understanding of the legislation and a close examination of the nature of the working relationship between the contractor and the end client.

Assessing IR35 status is complex, with no one factor being determinative. It requires detailed knowledge of decades of employment status case law, contractual interpretation, contractual construction, and a thorough understanding of how HMRC manages enquiries and judges make status decisions. IR35 status is not an accounting matter. It is a legal matter.

After the IR35 status of a worker has been assessed and a determination made, a Status Determination Statement (SDS) should be created and include the following:

1. The employment status determination
2. Reasons for that determination
3. Information used in making the determination
4. Signatures of both parties that agree the SDS is entirely correct

For an SDS to be "valid", as per the legislation, only the first two elements are mandatory. The lack of clarity has led some businesses to provide a flimsy set of reasons with little detail.

Protracted enquiries are much costlier for businesses due to additional fees required for expert defence. Withholding, or being unable to supply, information used in determining IR35 status, and failing to have parties sign the SDS, weakens the determination and increases the likelihood of lengthy HMRC investigations.

The legislative requirement for an SDS was introduced in April 2021 and is intended to help combat the misclassification of status due to non-compliant blanket or role-based assessments.