What Is an SDS (Status Determination Statement)?

What an SDS is and why it matters more than it looks

A Status Determination Statement (SDS) is the formal document that records an IR35 decision.

On paper, it sounds simple. In practice, it’s one of the most important and most misunderstood parts of the IR35 framework.

An SDS does three critical things at once:

It declares whether an engagement is inside or outside IR35
It assigns tax responsibility within the supply chain
It determines where legal and financial risk sits

When done properly, it creates clarity. When done poorly, it creates disputes, uncertainty, and exposure often for everyone involved.

Why the SDS Exists at All

The SDS was introduced alongside the IR35 reforms to stop informal or undocumented decisions.

HMRC wanted:

A clear, written decision
Evidence that the decision was considered
Accountability for how the decision was reached

In short, the SDS is meant to show reasonable care, not just a conclusion.

What a Valid SDS Must Include

For an SDS to be valid, it must include all of the following:

The IR35 status decision
Inside or outside IR35 — no ambiguity.
The reasons for that decision
Not generic statements. Actual reasoning based on the engagement.
Communication to all relevant parties
The contractor and the fee-payer must both receive it.

If any of these elements are missing, the SDS may be defective even if the status itself seems plausible.

“Reasonable Care”: The Standard Most SDSs Fail Quietly

Reasonable care is the legal threshold clients must meet when issuing an SDS.

In practice, reasonable care means:

Assessing the specific role, not a job title
Considering working practices, not just contracts
Applying judgment rather than automation

Many SDSs fail because they rely on:

Blanket decisions
Automated tools with no context
Generic reasoning reused across roles

An SDS that lacks genuine reasoning may shift liability back to the client, something many organisations underestimate.

Common Problems Found in Real SDSs

Contractors regularly encounter SDSs that look official but are weak on substance.

Common flaws include:

One-line explanations (“Role deemed inside IR35”)
No reference to control or substitution
No engagement-specific detail
Decisions copied across teams or departments

These documents often feel authoritative, but authority isn’t the same as validity.

How SDSs Are Actually Produced in Practice

In an ideal world, SDSs would be produced after:

Reviewing the contract
Interviewing stakeholders
Assessing real working practices

In reality, many are produced under pressure:

Tight onboarding deadlines
Limited internal expertise
Risk-averse legal teams

Understanding this context helps contractors challenge SDSs constructively, rather than emotionally.

Your Right to Challenge an SDS

If you disagree with an SDS, you have the right to challenge it.

Once a challenge is raised:

The client must review the decision
They must respond within 45 days
They must confirm or amend the SDS

Importantly, the challenge process is not optional. Clients are legally required to engage with it.

What Makes a Strong SDS Challenge

Effective challenges focus on evidence, not opinion.

Strong challenges typically:

Reference actual working practices
Point out inconsistencies or assumptions
Ask specific questions about reasoning
Avoid confrontational language

The goal isn’t to “win an argument”. It’s to expose where reasonable care may not have been applied.

Why SDSs and Reality Often Don’t Match

One recurring issue is misalignment between:

What the client believes happens
What actually happens day to day

This can occur when:

SDSs are created centrally
Hiring managers aren’t consulted
Roles evolve after onboarding

Contractors are often closest to reality — but only if they articulate it clearly.

SDSs, Liability, and the Supply Chain

An SDS doesn’t just affect the contractor.

It determines:

Who deducts tax
Who pays employer National Insurance
Who carries liability if the decision is wrong

A flawed SDS can create cascading issues across agencies, payroll providers, and clients.

This is why SDSs are often scrutinised during IR35 investigations by HMRC.

When Contractors Should Take an SDS Seriously

Contractors should pay close attention to an SDS if:

The reasoning is vague or generic
It contradicts the contract
It ignores working practices
It labels everything inside IR35 without explanation

An SDS isn’t just admin. It’s a risk document.

A Practical Way to Think About an SDS

Instead of asking “Do I agree with this SDS?”, ask:

Could this document stand up to scrutiny if HMRC reviewed it line by line?

If the answer is no, it’s worth engaging calmly and constructively.

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