The Essential Guide to IR35 in April 2021 – Part 3

Paul Mason Markel Tax
Last updated December 21, 2020

Who makes the Status Determination Statement and to whom must it be issued?

We will start by considering which entities do NOT have to make the decision: small companies and clients based wholly overseas.

Small companies

Small companies (as defined by s382(2) of CA2006) meet two of the three following criteria:

  • Turnover of no more than £10.2 million
  • Balance sheet total of no more than £5.1 million
  • No more than 50 employees (which does not include subcontractors)

They are exempt from the legislation, which HMRC have stated excludes 1.5 million small companies.

However, HMRC have also clarified that where a small company is part of a group, the group situation has to be considered; i.e. no setting up a small company to engage all of your contractors.

it is likely that HMRC may focus on some of the small consultancies which may spring up to ensure that they are not being used to avoid the end client’s obligations.


One webinar attendee had a number of end clients, all of which were small companies. His company was responsible for determining the IR35 status of all these engagements and has the liability for the tax if any of these engagements is found to be inside IR35, having been treated as outside. For this freelancer, the status quo remains.

Another individual wanted to know if his PSC had to issue an SDS (Status Determination Statement) because its client was small. No, the responsibility for issuing an SDS never rests with a PSC.

Finally, in response to a query raised, the size conditions only apply to end clients. The size of the agency, which is the fee-payer/deemed employer in the contractual chain, is not relevant in determining whether the off-payroll working rules apply or not. So a small-sized agency would still be responsible for applying the off-payroll working rules, even if they were not medium or large-sized.


“the responsibility for issuing an SDS never rests with a PSC”


Overseas clients and IR35

Where an end client is based overseas, then HMRC cannot compel them to make an IR35 status decision as HMRC’s jurisdiction does not extend beyond these shores. Therefore, the first ‘onshore intermediary’ has the decision-making responsibility.

That could be a UK-based recruitment agency, but if your business is engaged by an overseas client directly, then the first onshore intermediary is your company (hence the Intermediaries Legislation) and it will be your responsibility to determine the status of an engagement (and have the liability for an incorrect decision).


“the fact that the work may be overseas does not mean that IR35 does not apply. If your company is based in the UK, then it is subject to UK tax law”


If an overseas client has a UK presence, then they will have the decision-making responsibility unless part of a group which is a small company – logically the group would need to be considered, not the size of the UK presence.

Finally, the fact that the work may be overseas does not mean that IR35 does not apply. If your company is based in the UK, then it is subject to UK tax law.


Where the exemptions do not apply

All other engagements with PSCs which commenced on or continued beyond 6th April 2021, required end clients to consider whether IR35 applied and create a Status Determination Statement (SDS).

This was also required where a current engagement extended beyond the 2020/21 tax year: until April 5th, contractors in the private sector had the responsibility to determine the IR35 status of their engagements; from 6th April 2021, responsibility (and liability) transferred to other parties where the contractor was engaged by a medium or large-sized end client.

One of the questions asked was whether some of the globally know consultancy firms had to worry about the whole SDS process and the answer was – as in most things tax related – “it depends”. The question we have to ask is who is the end client?

Where an end client genuinely outsources a project or complete service – e.g. IT, HR, facilities management, security, catering etc – to a third party, then that third party becomes the end client for the purposes of IR35.  If they engage contractors, they will have all the responsibilities of an end client in respect of the off-payroll legislation, and these are set out below.

However, if the end client is using the consultancy to fill “vacancies”; i.e. to find a project manager, a business analyst, a tester, then the consultancy would NOT be the end client for the purposes of the legislation, but would be taking on the role of fee payer. This is because it will be paying the freelancer’s company. In this scenario of filling roles, the end client is the decision-maker and must create the SDS.

The SDS must be issued to the individual worker and where there are recruitment agencies in the chain, then it is the end client’s duty to also pass on the SDS to the agency immediately below it in the chain. Where there is more than one agency in the contractual chain, it is the responsibility of Agency One to pass it on to Agency Two and so on.

A Status Determination Statement MUST be issued by the end client, irrespective of whether the engagement with a limited company contractor is inside or outside IR35.

Failure by the end client to issue an SDS to the relevant parties would result in the end client having the status of fee payer and HMRC collecting the tax due from the end client – even if the correct tax has been deducted by the entity lower in the contractual chain which was responsible for paying the PSC.

Similarly, failure of an agency to pass the SDS on to the next agency in the contractual chain would mean that agency had failed in its responsibility and it would have the fee payer liability.


Look out for the next two parts of this five part guide, on the IR35 Hub.

Read part one here

Read part two here.

Click here to download our Contractor’s Guide to IR35



Related Articles:

The Essential Guide to IR35 in April 2021 – Part 1 

The Essential Guide to IR35 in April 2021 – Part 2

The Essential Guide to IR35 in April 2021 – Part 3

The Essential Guide to IR35 in April 2021 – Part 4 

The Essential Guide to IR35 in April 2021 – Part 5 


Author Paul Mason, Head of Tax Partnerships at Markel Tax

For IR35 consultancy services please contact Markel Tax on 0345 223 2727.

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