IR35 Status Determination Statement Explained

What the off-payroll working rules actually require

The off-payroll working rules — usually called IR35 — make sure a worker who provides services through their own intermediary (typically a personal service company, or PSC) pays broadly the same Income Tax and National Insurance as an employee would, if they'd have been an employee had they worked for the client directly. See gov.uk — Understanding off-payroll working (IR35).

Who the rules apply to

The rules apply to all public sector clients, and to medium and large-sized clients in the private and voluntary sectors. A private-sector client counts as medium or large if it meets two or more of: annual turnover over £10.2 million, a balance sheet total over £5.1 million, or more than 50 employees. If a private-sector client meets fewer than two of those, it's a small client, and a different rule applies: the worker's own intermediary — not the client — is responsible for deciding whether the rules apply. See gov.uk — Off-payroll working for clients. For a recruitment agency, this size test matters because it tells you who in the chain should be issuing the paperwork you're chasing — the size condition applies to the client, not to the agency: even a small agency carries responsibilities under the rules once its client is medium or large. See gov.uk — Off-payroll working for agencies.

What a Status Determination Statement (SDS) is

A Status Determination Statement is the client's formal written decision on whether a specific engagement falls inside or outside the off-payroll working rules. It must be passed to both the worker and the next party in the supply chain (often the agency), and it must give the reasons for the conclusion, not just the conclusion itself.

Who has to issue one — the client, not the agency

Responsibility for making the determination sits with the client, never with the agency placing the worker. Until the client actually communicates its determination and reasons to the worker and the agency, the client itself remains liable for deducting Income Tax and employee National Insurance, and for paying employer National Insurance — so a client that sits on an undelivered SDS doesn't shift that liability by staying quiet. See gov.uk — Off-payroll working for clients.

What "reasonable care" means when making a determination

The client must take reasonable care when reaching the determination — HMRC's own wording is that the decision should be based on the actual contract and working arrangements, not a template answer applied without looking at the specific engagement. Skipping reasonable care carries a direct consequence: if the client doesn't provide reasons for its determination, responsibility for the worker's Income Tax and National Insurance becomes the client's own. See gov.uk — Off-payroll working for clients, "Taking reasonable care when making a determination" and HMRC's Employment Status Manual — reasonable care.

Is there an official HMRC tool for this?

Yes — HMRC's Check Employment Status for Tax (CEST) tool. It's free, anonymous, and open to hirers, workers and agencies alike. Used properly, with accurate information, HMRC will stand by the result it gives, and the saved result can be used as a valid Status Determination Statement in its own right. See gov.uk — Check Employment Status for Tax (CEST).

The "deemed employer" chain — where the agency fits in

The deemed employer is whichever qualifying person or organisation sits lowest in the labour supply chain, above the worker's own intermediary, while holding the SDS. It starts out as the client. The client remains the deemed employer — and carries the PAYE/NI liability — until it tells the worker and the next party in the chain (usually the first agency) of its determination and the reasons for it. Once that happens, the deemed-employer position, and the liability that comes with it, moves down to whoever received the SDS next, and it keeps moving down the chain each time an agency passes it on to the next party, until it lands with an agency that has direct contact with the worker's intermediary. See gov.uk — Off-payroll working for agencies.

If your agency is first in the labour supply chain, it's worth being deliberate about who you contract with further down it: if HMRC can't collect outstanding tax from a party below you because that party has dissolved for reasons other than a genuine business failure, the liability can transfer back up to you.

What happens if the SDS is missing or disputed

If you don't receive an SDS

Gov.uk's guidance is specific: if you don't receive a Status Determination Statement, pass on payment without deducting Income Tax or National Insurance, and ask the client (or whoever's directly above you in the chain) why you didn't get one. There are two legitimate reasons an SDS might genuinely be absent: the client is a small-sized private-sector client, which isn't required to make determinations at all, or the client has already determined the engagement is outside the rules, in which case the worker accounts for their own tax. See gov.uk — Off-payroll working for agencies.

The client-led disagreement process

A worker (or the current deemed employer) who disagrees with an SDS can raise that disagreement directly with the client — verbally or in writing, with the specific reasons for the disagreement so the client has enough to consider. A vague objection with no reasons doesn't oblige the client to reconsider. Once a disagreement is properly raised, the client has 45 calendar days to respond: either confirming the original SDS or issuing a revised one, in both cases taking reasonable care over the response, and the rules keep applying under the original determination while the 45 days run. An agency that isn't itself the deemed employer doesn't have the right to raise a disagreement under this process — that right belongs to the worker and to whichever party currently holds deemed-employer status. See gov.uk — ESM10015A: client-led status disagreement process.

How Templio tracks IR35 status alongside timesheets and pay

Templio records each contract's IR35 status — inside, outside, or small-company-exempt — together with the date an SDS was received and who issued it, on the contract itself. That sits alongside the rest of the compliance record: AWR week tracking, umbrella due-diligence evidence, and document expiry, on the same pricing, with no separate compliance module to buy. See our timesheet software for recruitment agencies page for how this fits into the day-to-day timesheet workflow, our AWR 12-week rule guide for how the two regimes sit side by side, and our PAYE vs umbrella company guide for how engagement model interacts with both.

FAQs

What is an IR35 status determination statement? The client's formal written decision on whether a specific engagement falls inside or outside the off-payroll working rules, including the reasons for that conclusion, passed to the worker and the next party in the supply chain.

Who is responsible for issuing a Status Determination Statement? The client — never the agency. A small private-sector client is exempt from making determinations at all, in which case the worker's own intermediary decides instead.

What happens if I don't receive a Status Determination Statement? Pass on payment without deducting Income Tax or National Insurance, and ask the client (or the party above you in the chain) why. It may be because the client is small and exempt, or because the worker was determined to be outside the rules.

Can a Status Determination Statement be appealed or disputed? The worker, or whichever party currently holds deemed-employer status, can raise a disagreement directly with the client, with specific reasons. The client then has 45 calendar days to confirm or revise the determination. An agency that isn't the deemed employer doesn't have standing to raise the disagreement itself.

Is there an official HMRC tool for status determination? Yes — the Check Employment Status for Tax (CEST) tool. A saved CEST result, based on accurate information, can be used as a valid Status Determination Statement.

This guide is general information, not tax advice, and HMRC guidance is updated from time to time — check the live gov.uk pages before relying on a specific figure or deadline.