# IR35 Status Determination Statement: Guide to SDS An in-depth guide to the IR35 Status Determination Statement (SDS). Discover who must issue them, the critical 2026 small company threshold changes, and how to contest incorrect assessments. **Published:** 2026-07-03 **Updated:** 2026-07-03 **Source:** https://aztajournal.com/gb/ir35-status-determination-statement-guide --- > A Status Determination Statement (SDS) is a legal document used to assess a contractor's IR35 tax status. This guide explains which businesses must issue them, the critical 2026 small company threshold changes, and how to contest an incorrect assessment. The Status Determination Statement (SDS) is a mandatory document that details whether a contractor's engagement falls inside or outside the IR35 off-payroll working rules. Under UK tax law, the end-client is responsible for assessing this status and must provide a clear written statement explaining their reasoning directly to the contractor and the fee-payer. Failing to issue an accurate SDS or omitting it entirely shifts the financial liability for unpaid taxes and National Insurance contributions directly back to the end-client. ## Key Takeaways: IR35 Status Determination Statements - An SDS must be issued by the end-client to determine whether a contractor falls under inside or outside IR35 rules. - The statement is legally invalid unless the client takes reasonable care and provides the exact reasons for their decision. - From 6 April 2026, the small company thresholds increase, which exempts more businesses from having to produce an SDS. - When a client is exempt as a small business, the responsibility for assessing IR35 status reverts to the contractor's own Personal Service Company. ## What is a Status Determination Statement (SDS)? A Status Determination Statement is a formal written document that states an end-client's conclusion on whether a contractor's engagement is inside or outside IR35. Under s.61NA of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), the document must also outline the detailed reasons behind this conclusion. The client must use reasonable care when drafting the statement. A template-based or blanket assessment applied to all contractors without looking at individual contracts does not satisfy the requirements of ITEPA 2003. This means that if a client fails to take reasonable care, the determination is legally invalid. ## Who is responsible for producing an SDS? The end-client always bears the legal responsibility for assessing the worker's status and producing the written statement. - The client must draft the status determination statement. - The client must send the completed statement directly to the contractor. - The client must also pass the statement to the first agency or fee-payer in the direct supply chain. - Public sector bodies of all sizes have carried this obligation since April 2017. - Medium and large private sector businesses have carried this responsibility since April 2021. ## How do the new 2026 small company thresholds affect SDS? From 6 April 2026, the financial thresholds that define a small business increase, meaning more organisations will become exempt from producing an SDS. Under the off-payroll working rules, small private businesses are exempt from preparing an SDS. When an end-client qualifies as small, the responsibility for assessing tax status under Chapter 8 ITEPA 2003 returns entirely to the contractor's Personal Service Company. To qualify as a small business, an organisation must meet at least two of the three criteria in a financial year. | Threshold Requirement | Before 6 April 2026 | From 6 April 2026 onwards | | --- | --- | --- | | Annual turnover | Not more than £10.2 million | Not more than £15 million | | Balance sheet total | Not more than £5.1 million | Not more than £7.5 million | | Number of employees | 50 or fewer | 50 or fewer (no change) | The 2026 threshold adjustment is estimated to reclassify around 14,000 businesses from medium to small. Contractors working for these newly exempt businesses will once again manage their own IR35 compliance. ## What happens if an SDS is not issued correctly? Failing to issue an SDS correctly moves the responsibility for paying Employment taxes straight back to the client. According to s.61NA(2) of ITEPA 2003, if the client fails to provide the SDS to the contractor or the fee-payer, they take on the legal status of the fee-payer. This means the client becomes directly liable for PAYE tax and National Insurance contributions that should have been deducted. > If you draft an assessment without reasonable care, HMRC will treat the SDS as invalid. Your business will then be liable for unpaid taxes and penalties instead of the recruitment agency. ## How do you challenge an SDS you disagree with? Contractors have a statutory right to challenge a decision they believe is incorrect through a client-led disagreement process. 1. The contractor or fee-payer delivers a formal, written objection to the client pointing out why the SDS is incorrect. 2. The client must review the feedback under the s.61T ITEPA 2003 dispute procedure. 3. The client has exactly 45 days from receiving the objection to respond. 4. The client must either confirm the original decision with explanation or issue a new SDS with a different status. If the client fails to respond within the 45-day window, they assume full liability for PAYE and National Insurance taxes. ## Frequently Asked Questions ### What is a Status Determination Statement (SDS)? An SDS is a formal written document issued by a client stating whether a contractor's engagement is inside or outside IR35, backed by clear reasons. ### Who is responsible for producing an SDS? The end-client receiving the services is responsible for assessing compliance and issuing the written statement to the worker and fee-payer. ### What happens if an SDS is incorrect or not issued? The end-client becomes liable for unpaid payroll taxes, income tax, and National Insurance contributions under s.61NA ITEPA 2003. ### Are small businesses exempt from issuing an SDS? Yes. If the client is classified as a small business under the legal criteria, the responsibility for IR35 status remains with the contractor's PSC. ### How can a contractor contest a Status Determination Statement? Contractors can submit a written objection to the client, who is legally required to respond and resolve the issue within 45 days under s.61T ITEPA 2003.