Frequently asked questions about the IR35 in 2021

Paul Mason Markel Tax
Last updated January 20, 2021

We have collated some of the most common questions asked about the IR35 changes, relevant to each area of the supply chain: contractors, end-clients and agencies.


Contractor IR35 questions

If I work for a small company, do I have to create a Status Determination Statement (SDS) for the engagement?

No. If the end clients business is a small company, they should notify you that they are a small company and that they do not need to produce a Status Determination Statement (SDS). In these circumstances, you would continue as you usually do, self-assess your IR35 position and account for your own tax and National Insurance in the usual way.


The end client is a large business and my current contract extends past April 2021. It has already been assessed by my accountant as outside of IR35 – can I rely on this or does it need to be re-assessed?

The end client will have an obligation to produce a SDS to cover the period from 6 April. They must provide it to you personally and the agency in the chain immediately below the end client’s business if there is one. The legislation places an obligation on the end client to make a decision, so while your existing assessment may prove helpful in the event of a disagreement, it doesn’t stop the need for the end client to make their own decision and issue a SDS.


If the end-client issues a SDS where I am inside of IR35 and I don’t agree, what can I do?

HMRC have confirmed that a SDS issued prior to 6 April 2021 would be valid post 6 April 2021. Many end client businesses have already started the due diligence and in-house processes well in advance of the changes. We are aware that many contractors have been issued SDSs and have been asked to confirm whether they disagree or not.

We would recommend that if you are to do this you spend time formulating your response with evidence to support your view and perhaps enlist the services of your accountant or tax specialist to carry out an independent review of your engagement. This will not only add credibility to your argument but may also highlight where a client is not taking reasonable care in arriving at their decision.

If the client is not taking reasonable care in their decision-making process, they run the risk of where HMRC start an enquiry take the same view and the responsibility for the deduction of tax, NICs, payment of apprenticeship levy and paying these to HMRC would be the client’s responsibility. This would be the case even if another party has already made deductions in line with the original determination.

If the client is taking reasonable care and cannot be persuaded to change their opinion, then there is very little you can do other than refuse the assignment.

Contractor IR35 Questions



End client IR35 questions:

Can we use HMRC CEST tool to determine the IR35 status of contractors?

In our opinion, the CEST does not provide an accurate result for most of our clients because the questions do not help with real world contracting situations. If you do choose to use CEST, HMRC guidance says that this will help to demonstrate consideration.

What CEST does not do is examine the written contracts in detail, which is needed to make an accurate opinion and a valid SDS cannot be issued without examination of the written terms – a point which HMRC make on the front webpage of the CEST tool.

You should also be aware that HMRC also issue a disclaimer before you start the process and this states that HMRC will stand by the result you get from this tool.  However, they then state clearly that this will not be the case “if the information you have provided was checked and found to be inaccurate”. They then confirm that “HMRC will also not stand by results achieved through contrived arrangements, designed to get a particular outcome from the service. This would be treated as evidence of deliberate non-compliance, which can attract higher associated penalties.”

You have been warned!


If we use an outsourced management company rather than an agency, do we still have to complete the Status Determination Statement (SDS)?

If you are contracting with a company that is providing you with a completely outsourced provision of services, this type of company has an impact on the legislation.

The reason the end client is the decision maker is because they are the party in receipt of the contractor’s services. They have typically gone via an agency to find an individual needed within their end client organisation.

Where an outsourced company is engaged and they engage contractors, then for the purposes of the legislation it is that outsourced company which is the end client decision-maker. This is because it is the outsourced company which is in receipt of the contractor’s services and they utilise those services as they see fit.

However, great care must be taken with contractual documentation. If, contractually, the services are not fully outsourced and are for the provision of a contractor or the fulfilment of a role, then regardless of what the company calls itself, it would not been viewed as a genuine outsourced arrangement and you, as the end client, would retain responsibility to provide the SDS.


Do we have to complete a SDS for each contractor?

Yes. As decision-maker, you are responsible for taking reasonable care when coming to a decision as to whether IR35 applies. Case law on this area is clear:  the facts of each engagement must be considered.

HMRC’s guidance is that it is acceptable for a client to make a status determination for a group of workers, providing the workers are engaged under the same contractual terms and conditions and in practice, work under the same terms and conditions.

However, making blanket decisions for the whole contractor workforce would not satisfy the reasonable care requirement (as they do not look at the individual working arrangements sufficiently).


Agency IR35 questions:

We are the agency closest to the client and there is another agency beneath us in the chain which engages the contractors. What obligations do we have under the new proposals?

As the agency closest to the client, you will receive the Status Determination Statement (SDS) from the client. It is your obligation to pass this SDS down the chain to the agency beneath you. If you fail to pass this down, you will effectively stand as fee payer (with the associated potential liabilities) until this is passed down.


We are the agency dealing with contractors and understand we are the “fee payer”, what exactly is our exposure if HMRC decide an engagement is caught?

Assuming you have received an “outside of IR35” SDS and have been paying the contractor gross, if HMRC subsequently challenge this then as fee payer “you” are the party who is primarily liable for the unpaid tax and NI which should have been deducted. Also, it is your agency that will need to defend the IR35 position in the event of an HMRC enquiry.

This may seem unfair given that it is the client who made the decision, but this is how the legislation is worded. The end client may become liable if it did not take reasonable care making the decision on IR35, but in most cases the liability will rest solely with the fee payer.


As the fee payer agency what do I do if I don’t receive a SDS? And what do I do with SDS’s I do receive?

As mentioned above, if you do not receive the SDS then, technically, you cannot be held liable in the event of an HMRC Enquiry (as effectively the last party holding the SDS is the party deemed as fee payer).

As a point of best practice, we would recommend you request the SDS if you have not received one for a particular contractor, even though the legislation does not oblige you to do so.

In respect of the SDS’s you have received, as you are the party who will be the subject of an HMRC enquiry, it is vital you keep copies of all the SDS’s so that you can demonstrate to HMRC that you have complied with your obligations under the legislation.

Written documentation is key to ensuring HMRC enquiries move more quickly and efficiently.


Original article written and published by Markel Tax 01/12/2020

Paul Mason Markel Tax
Last updated January 20, 2021

Related IR35 content

Case law examples that have helped determine employment status and IR35

While IR35 as we know it has only been in existence since it was first announced in 1999, by the…

Read more

Managed Service Company (MSC) legislation: an expert’s overview for contractors

To understand the Managed Service Company (MSC) rules, given the limited case law on the subject, we must dive into…

Read more

Contracts with overseas fee-payers: pros and cons

A question that arose from a recent contractor survey is, ‘what are the pros and cons of working with overseas…

Read more

Contractors hit with huge tax bills for breaching Managed Service Company rules

It is 12 months since the changes to off-payroll legislation on 6 April 2021 went live. Navigating IR35 still remains…

Read more

What are the implications of being a UK resident, but running your company from overseas?

This subject is widely regarded as “complicated,” and if you find yourself in this position and require a detailed explanation…

Read more

What is the difference between project-based vs task-based engagements in relation to IR35?

Project-based vs task-based engagements The reason that we ask this question when reviewing an engagement is to understand the nature…

Read more

A brief explanation of the Key Information Document (KID)

Following on from our brief mention of the Key Information Document (KID) in our article “The Essential Guide to IR35…

Read more

Key stats about IR35 six months after the reform went live

Just over six months on from the April 2021 rollout of IR35 legislation to the private sector and the UK…

Read more

What do recruitment agencies need to do to protect themselves from IR35?

Recruitment agencies will be the parties viewed as being responsible for any unpaid tax as they’re considered the ‘fee-payer’ in…

Read more

IR35 and Umbrella companies – how does contracting through an Umbrella company make a difference?

When the off payroll working rules were introduced into the public sector in April 2017, it quickly became clear to…

Read more

What is my IR35 status?

As a private sector contractor operating through a Personal Service Company (PSC), you can’t afford to wait until April 2021…

Read more

Factors that determine IR35 status

IR35 v self-employment Just to clarify a key point before we begin, a contractor does not have to be engaged…

Read more

New IR35 Rules explained

After being delayed for a year due to the Coronavirus pandemic, the new private sector off-payroll working legislation (IR35) will…

Read more

How to protect against an IR35 tax investigation

If you receive a letter from HMRC regarding an IR35 tax enquiry it is important that you immediately seek advice…

Read more

What is IR35 and who does it apply to?

A useful starting point is to explore the background to the off-payroll working legislation (IR35), because the changes that came…

Read more

Can contractors working on contracts inside IR35 still work through a limited company?

The off payroll working rules, known as IR35, were rolled out into the private sector on April 6th, 2021. The…

Read more

Why end-client businesses should make their IR35 decisions now

IR35 decisions can be made now End-client businesses which engage contractors (whether directly or indirectly via agencies) must determine whether…

Read more

Fee payers: Your IR35 responsibilities and your liability

The fee payer is the party paying the contractor’s PSC; i.e. the entity directly above the contractor’s limited company in…

Read more

What to expect from a HMRC IR35 investigation

If you receive a letter from HMRC regarding an IR35 enquiry it is important that you seek advice from an…

Read more

Frequently asked questions about the IR35 in 2021

We have collated some of the most common questions asked about the IR35 changes, relevant to each area of the…

Read more

IR35 Where are we now and what does the future hold?

After the government’s postponement of the IR35 changes, the off-payroll legislation in the private sector reforms are now imminent. The…

Read more

Who pays the Piper? The Relevant Person and IR35 Debt Transfers

One of the most confusing issues with the new rules for IR35 which will come into force next April are…

Read more

6 Questions you need to ask yourself about IR35

The fundamentals of IR35 are NOT changing: understanding the key status indicators – personal service, control, and mutuality of obligations – is…

Read more

The impact on contractors of the deferral of private sector IR35 reform until April 2021

Since Steve Barclay, the Chief Secretary to the Treasury announced a 12-month delay to the IR35 private sector reform in…

Read more

Why do I need an IR35 contract review?

Get a clear explanation of your IR35 status If you are a contractor with any doubts as to the compliance…

Read more

What is a Personal Service Company?

Found across all industries, a Personal Service Company (PSC) is a company which provides personal services of a single contractor…

Read more

What is IR35 and how does it work?

IR35 – or the Intermediaries Legislation – was introduced by HMRC in 2000, and was aimed at individuals who were…

Read more

What is a contract review and do I need one?

A Contact Review is a report that independent tax specialists such as Markel Tax provide to contractors giving an opinion…

Read more

IR35 changes 2021: What you need to know

IR35 effective from April 2021 The Government has reaffirmed plans to make changes to off-payroll working (IR35) rules effective from…

Read more

What is inside and outside IR35

No statutory definition of a contract of service There is no statutory definition of a contract of service (employment contract)…

Read more

Will contractors still need insurance for IR35 after April 6th?

Amendment: On March the 18th 2020, the Government announced that the roll-out of private sector IR35 reform would be postponed…

Read more

What is IR35 and how will it affect you as a freelance contractor?

For many freelancers, IR35 sounds like another jargon term that has no relevance to them and there is a concerning…

Read more

The Right of Substitution

The right of substitution is one of the key tests of your IR35 employment status as set out by the…

Read more

Mutuality of Obligation (MOO)

Mutuality of Obligation refers to the obligation of the employer to provide work and pay for it. This is combined…

Read more

Retain your control as a contractor to keep IR35 at bay

Control is one of the three key points that is used to determine whether a contractor is working inside IR35…

Read more

The importance of an IR35 Contract Review for private sector contractors

If you are a private sector contractor, you should be fully aware of the private sector IR35 changes that are…

Read more

What is IR35 and how does it affect you?

Whether you’re new to contracting or an old-hand, the issue of IR35 is never far away.  IR35 status affects your…

Read more

PSCs inside IR35 – Keep Calm and carry out some research

A week on since the Finance Bill 2017 became law public sector contractors who operate through PSCs are facing a…

Read more

IR35 Products & services

Caunce O’Hara’s partnership with Markel enables us to offer a broad range of IR35-based products to protect contractors, fee-payers and end clients across the UK.

IR35 Hub Related IR35 content