Status Determination Statements (SDS) Explained

What is a Status Determination Statement?

A Status Determination Statement is a formal written assessment issued by the client (engager) that determines whether a contractor's engagement falls inside or outside IR35. Medium and large clients have been required to issue SDSs since April 2021.

What must an SDS contain?

HMRC requires the SDS to state:

The conclusion — inside or outside IR35
The reasons for reaching that conclusion

A blanket SDS saying all contractors are inside IR35 without individual reasoning is not legally compliant, though many large organisations issue them anyway.

Who is responsible for issuing the SDS?

The client (end-user). They must pass the SDS to the fee-payer (which may be a recruitment agency in an agency supply chain) and to the contractor's company. The fee-payer is responsible for operating PAYE if the determination is inside.

Disagreeing with an inside-IR35 SDS

You have the right to challenge an SDS through the client's client-led disagreement process. The client must respond within 45 days. If you are not satisfied with the outcome, you can raise the dispute with HMRC.

In practice, challenging an SDS requires strong evidence about your actual working practices. Many contractors choose instead to negotiate a higher day rate or find an outside-IR35 engagement rather than challenge the determination.

Frequently asked questions

What if the client refuses to issue an SDS?

If a qualifying client fails to issue an SDS, they become the deemed employer and take on full PAYE liability. This provides some protection — but is difficult to enforce in practice.

Does an SDS bind HMRC?

No. An SDS is the client's assessment, not HMRC's. HMRC can still investigate and reach a different conclusion, including for historical periods. However, HMRC has stated it will not pursue contractors where the client made an incorrect determination in good faith.

Are small companies exempt from issuing SDSs?

Yes. Small clients (meeting two of: turnover under £10.2m, balance sheet under £5.1m, fewer than 50 employees) are exempt. For small client engagements, the contractor's company retains responsibility for self-assessing IR35 status.