ESM10013 | off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: what constitutes a valid Status Determination Statement (SDS)

Section 61NA Chapter 10, Part 2 ITEPA 2003

Regulation 14A Social Security Contributions (Intermediaries) Regulations 2000

For the Status Determination Statement (SDS) to be valid the client must:

• state in the SDS whether or not the worker would be an employee or office holder, or is an office holder, for tax and NICs purposes if they were directly engaged by the client,

• provide their reasons for coming to that conclusion, and

• have taken reasonable care in coming to their conclusion (see ESM10014).

If a SDS does not satisfy the 3 criteria above, it will not be valid and the responsibility for the deduction of tax and NICs, the payment of the apprenticeship levy and paying these to HMRC if due will rest with the client. Advertising a role as inside or outside the rules may add clarity to workers, but it is not, on its own, sufficient to be a valid SDS.

A SDS must contain the conclusion the client has reached as to whether the condition at section 61M(1)(d) ITEPA 2003 and regulation 13(1)(d) SSCIR 2000 is met. This condition requires the client to determine whether or not the worker would be an employee or office holder if engaged directly. To make this decision the client must consider the status as if there were no other parties in the chain other than itself and the worker. The decision should be based on normal status principles (see ESM0500).

A SDS must also contain the reasons why the client has come to its conclusion, based on the principles that govern whether a worker is an employee or office holder (set out in ESM0500 and ESM2500). This will include the relevant considerations made to provide sufficient clarity around the conclusion. These reasons will give the worker and deemed employer the information they need to understand why the conclusion has been reached, and enable them to make representations should they disagree through the client-led disagreement process (see ESM10015).

If the client has provided a conclusion with reasons, but has not taken reasonable care in doing so, this will not be a valid SDS, and responsibility for the deduction of tax and NICs, and the payment of the apprenticeship levy and paying these to HMRC will rest with them.

Status determinations made prior to 6 April 2021 can be a valid SDS for engagements carrying on after 6 April 2021, providing they meet the legislative requirements. A SDS must include the reason for reaching the conclusion and have been passed to the worker and any third party the client contracts with.

If the client subcontracts the determining of the worker’s status, or the production of the SDS, it will still remain responsible for taking reasonable care, ensuring the accuracy of the determination and ensuring that the SDS is passed to the worker and the party the client contracts with. The client will need to satisfy themselves that the status conclusion is one they agree with and that considerations took proper account of both contractual terms and conditions and working practices. If client responsibilities are subcontracted to another person, the client will need to make clear to other parties in the contractual chain that person is acting on the authority of the client.

CEST

HMRC’s Check Employment Status for Tax (CEST) tool can be used to aid those making employment status decisions. If the answers provided to CEST are accurate and in line with HMRC guidance, regardless of which version was used, HMRC will stand by the outcome, provided this outcome is followed. The output will contain all the questions and supplied answers that led to that outcome. HMRC considers that an accurate CEST output can be used to constitute a valid SDS providing it meets the conditions above. An enhanced version of CEST was released on 25 November 2019. HMRC considers that accurate outputs from the enhanced version of CEST meet the legislative requirements to be a valid SDS. Issuing a CEST output indicates the client’s agreement with the CEST output and that the conclusion in the output is the client’s conclusion. Other tools and advisers may be used and the conditions for a SDS to be valid would apply equally to those.