IR35 Status Determination Statement Template (Free SDS Template 2026)

Q: What happens if a client doesn't provide an SDS?

If a medium or large client fails to provide an SDS, the liability for unpaid PAYE and NI shifts to that client — not the contractor or agency. This is a significant risk for clients. The SDS must also be accompanied by reasons; a bare conclusion without explanation does not satisfy the requirement. HMRC can transfer the PAYE liability up the chain until it reaches whoever failed in their duty.

Q: Do small companies need to issue an SDS?

No. Small companies are exempt from the off-payroll working rules. If your end-client meets the Companies Act small company definition (two of three: turnover under £10.2m, balance sheet under £5.1m, fewer than 50 employees), you assess your own IR35 status as the contractor. From 6 April 2026, the thresholds rise significantly (turnover under £15m, balance sheet under £7.5m, fewer than 50 employees), bringing around 14,000 more companies into the small company exemption.

Q: Is an SDS required for every contract?

Yes, for every engagement with a medium or large client. If the same worker starts a new contract — even with the same client — a fresh SDS should be issued. An SDS from a previous engagement does not carry over to a new contract. Similarly, if working arrangements change materially during an engagement, the client should review the SDS and issue a new one if the determination changes.

Q: What's the difference between an SDS inside IR35 and outside IR35?

The wording differs. For inside IR35, the SDS must state that the off-payroll working rules apply and that PAYE deductions will be made on the deemed payment. For outside IR35, it states the rules do not apply and the contractor retains responsibility for their own tax. Both versions must give reasons for the conclusion — citing factors like substitution rights, control, and mutuality of obligation.

⚡ April 6 2026: Threshold Changes Affect SDS Requirements

From 6 April 2026, around 14,000 companies reclassify as small under new thresholds — meaning they will no longer need to issue an SDS. If your client is newly small, IR35 status determination responsibility shifts back to you. Check if your client qualifies →

What Is an IR35 Status Determination Statement?

An IR35 Status Determination Statement (SDS) is a formal written document that a client (the end-user of a contractor's services) must produce under the off-payroll working rules that took effect for the private sector in April 2021.

The SDS sets out the client's conclusion — inside IR35 or outside IR35 — for a specific contractor engagement, and gives the reasons for that conclusion. It must be issued to both the contractor and the fee-payer (usually the agency).

Without a valid SDS, a medium or large client is exposed to PAYE liability if HMRC investigates. The rules are set out in Chapter 10 of ITEPA 2003.

📌 Who Must Issue an SDS?

Only medium and large companies are legally required to issue an SDS. Small companies are exempt — the contractor's PSC determines its own IR35 status under the old Chapter 8 rules. Charities and public sector bodies follow their own rules regardless of size.

Free SDS Template — Inside & Outside IR35

Use the tabs below to select the version that applies. Copy the text, fill in the highlighted fields, and issue on company letterhead or via email.

✅ Outside IR35

⚠️ Inside IR35

📄 SDS Template — Outside IR35

STATUS DETERMINATION STATEMENT
Off-Payroll Working Rules (Chapter 10 ITEPA 2003)

Date:             [DATE OF ISSUE]

Worker / PSC:     [CONTRACTOR NAME / PSC NAME]
Engagement:       [DESCRIPTION OF SERVICES]
Contract period:  [START DATE] to [END DATE OR ROLLING]
Issued by:        [CLIENT COMPANY NAME]
Issued to:        [CONTRACTOR NAME] and [FEE-PAYER / AGENCY NAME]

─────────────────────────────────────────────────

DETERMINATION

[CLIENT COMPANY NAME] has concluded that the off-payroll working rules (IR35)
do NOT apply to this engagement. The worker providing services through their
personal service company is considered to be OUTSIDE IR35 for this contract.

─────────────────────────────────────────────────

REASONS FOR DETERMINATION

The following factors were considered in reaching this determination:

1. Substitution
[CONTRACTOR NAME / PSC] has an unfettered right to provide a suitably qualified
substitute to perform the services. [CLIENT NAME] has no right to refuse a
substitute on the grounds of personal preference. This right is genuine and has
not been excluded or restricted by side agreement.

2. Control
[CLIENT NAME] does not direct how the services are performed. The contractor
determines their own working methods, tools, and schedule. [CLIENT NAME] specifies
the outcomes required but not the means of achieving them.

3. Mutuality of Obligation
There is no obligation on [CLIENT NAME] to offer work beyond the agreed contract,
and no obligation on the contractor to accept it. The engagement ends on
completion of the defined scope.

4. Integration
The contractor is not integrated into [CLIENT NAME]'s organisation. They do not
receive employee benefits, do not attend mandatory staff training unrelated to
the engagement, and are not subject to [CLIENT NAME]'s HR policies.

5. Financial Risk
The contractor bears financial risk. They provide their own equipment where
relevant and are responsible for rectifying defective work at their own cost
and without additional payment.

[Add or remove factors as applicable to the specific engagement]

─────────────────────────────────────────────────

CEST TOOL REFERENCE (optional but recommended)
This determination is consistent with / supported by HMRC's Check Employment
Status for Tax (CEST) tool. Reference: [CEST REFERENCE NUMBER IF AVAILABLE]

─────────────────────────────────────────────────

SIGNED

Name:      [AUTHORISED SIGNATORY NAME]
Position:  [JOB TITLE]
Company:   [CLIENT COMPANY NAME]
Date:      [DATE]

─────────────────────────────────────────────────

DISAGREEMENT PROCESS

If the worker or fee-payer disagrees with this determination, they may raise a
written disagreement with [CLIENT COMPANY NAME]. We will respond within 45 days
with either a maintained or revised determination and reasons. Please send any
disagreement to: [CONTACT EMAIL / ADDRESS]

📄 SDS Template — Inside IR35

STATUS DETERMINATION STATEMENT
Off-Payroll Working Rules (Chapter 10 ITEPA 2003)

Date:             [DATE OF ISSUE]

Worker / PSC:     [CONTRACTOR NAME / PSC NAME]
Engagement:       [DESCRIPTION OF SERVICES]
Contract period:  [START DATE] to [END DATE OR ROLLING]
Issued by:        [CLIENT COMPANY NAME]
Issued to:        [CONTRACTOR NAME] and [FEE-PAYER / AGENCY NAME]

─────────────────────────────────────────────────

DETERMINATION

[CLIENT COMPANY NAME] has concluded that the off-payroll working rules (IR35)
DO apply to this engagement. The worker providing services through their
personal service company is considered to be INSIDE IR35 for this contract.

The fee-payer ([AGENCY / CLIENT NAME]) is required to deduct PAYE income tax
and National Insurance Contributions from payments made to the PSC, treating
the deemed payment as employment income.

─────────────────────────────────────────────────

REASONS FOR DETERMINATION

The following factors were considered in reaching this determination:

1. Substitution
The contract does not provide an unrestricted right of substitution, or in
practice the worker is required to provide the services personally. [CLIENT NAME]
has approval rights over any substitute, which indicates personal service.

2. Control
[CLIENT NAME] exercises a significant degree of control over how, when, and where
the services are delivered. The worker is integrated into [CLIENT NAME]'s team
structure and subject to day-to-day direction.

3. Mutuality of Obligation
There is an expectation of ongoing work and a continuing obligation to make the
worker available. The arrangement resembles an employment relationship in its
continuity and expectation of future engagement.

4. Integration
The worker is integrated into [CLIENT NAME]'s organisation: attending team meetings,
working with [CLIENT NAME]'s equipment, and performing work core to the business.

5. Other relevant factors
[ADD ANY ADDITIONAL RELEVANT FACTORS, e.g. financial risk, exclusivity, benefits]

[Add or remove factors as applicable to the specific engagement]

─────────────────────────────────────────────────

CEST TOOL REFERENCE (optional but recommended)
This determination is consistent with / supported by HMRC's Check Employment
Status for Tax (CEST) tool. Reference: [CEST REFERENCE NUMBER IF AVAILABLE]

─────────────────────────────────────────────────

SIGNED

Name:      [AUTHORISED SIGNATORY NAME]
Position:  [JOB TITLE]
Company:   [CLIENT COMPANY NAME]
Date:      [DATE]

─────────────────────────────────────────────────

DISAGREEMENT PROCESS

If the worker or fee-payer disagrees with this determination, they may raise a
written disagreement with [CLIENT COMPANY NAME]. We will respond within 45 days
with either a maintained or revised determination and reasons. Please send any
disagreement to: [CONTACT EMAIL / ADDRESS]

What Must an SDS Include?

HMRC sets out the minimum requirements for a valid Status Determination Statement. A bare conclusion is not enough — the legislation requires reasons. An SDS that simply says "outside IR35" without explanation does not satisfy the legal requirement.

✅ SDS Mandatory Elements

✓Clear conclusion: Must state explicitly whether IR35 applies (inside) or does not apply (outside).

✓Reasons for the conclusion: Must explain the factors considered — substitution, control, MOO, and any other relevant indicators.

✓Issued to the worker: A copy must be given to the contractor (or their PSC) before the engagement begins or before the first payment.

✓Issued to the fee-payer: A copy must also go to the agency or the party paying the PSC directly.

✓Disagreement process: Must include details of how the worker can raise a disagreement and that the client will respond within 45 days.

✓In writing: The SDS must be a written document — verbal determinations do not count.

The SDS Disagreement Process

Contractors have a statutory right to challenge a client's SDS conclusion. The process is as follows:

Contractor raises a written disagreement

The contractor or their PSC sends a written disagreement to the client, explaining why they believe the determination is incorrect. There is no prescribed form — a clear email is sufficient.

Client has 45 days to respond

The client must respond within 45 days with either a maintained determination (with updated reasons) or a revised determination. If the client does not respond within 45 days, the PAYE liability transfers to them.

Escalate to HMRC if unresolved

If the disagreement cannot be resolved, either party can ask HMRC to decide — through the CEST tool or by writing to HMRC's Employment Status team. HMRC's view is not binding but carries significant weight.

Who Issues the SDS — Company Size Guide

Whether your client needs to issue an SDS depends entirely on their company size. Use this table to check:

Company Type	Must Issue SDS?	Who determines IR35?
Large company (exceeds 2 of 3 thresholds)	Yes	Client
Medium company (exceeds 2 of 3 thresholds)	Yes	Client
Small company (meets 2 of 3 small thresholds)	No	Contractor's PSC
Public sector body	Yes (always)	Public authority
Overseas client (no UK presence)	No	Contractor's PSC

📊 Small Company Thresholds from 6 April 2026

A company is small if it meets two of three of these criteria: Turnover under £15m (was £10.2m) | Balance sheet under £7.5m (was £5.1m) | Fewer than 50 employees (unchanged). If your client now qualifies as small under these new thresholds, they no longer need to issue an SDS and you determine your own IR35 status.

Common SDS Mistakes to Avoid

No reasons given: The most common error. A conclusion without reasoning is not a valid SDS and exposes the client to liability.
Blanket determinations: Issuing the same SDS to all contractors without individual assessment. HMRC has challenged these as non-compliant.
Not sending to the agency: The SDS must go to the fee-payer (agency), not just the contractor. Missing this step means the client retains liability even if they issued the SDS to the worker.
No disagreement process: Failing to include how a contractor can raise a challenge. This is a legal requirement, not optional.
Reusing an old SDS for a new contract: Each new engagement requires a fresh SDS. A rolling extension on the same contract may not require a new SDS if nothing material has changed, but a new contract does.
Issuing for a small company: If your client is a small company, they should not be issuing an SDS — you determine your own status. An SDS from a small company has no legal standing.

Not sure if your contract is inside or outside IR35?

Use our free IR35 calculator to model your take-home pay under both scenarios before your next contract decision.

Use the IR35 Calculator →

Frequently Asked Questions

What must an IR35 Status Determination Statement include? +

An IR35 SDS must include: the client's conclusion on whether IR35 applies (inside or outside), the reasons for that conclusion, and confirmation that the worker has been given a copy. It must be in writing and provided to both the worker and the fee-payer (agency). The statement must be provided before the engagement begins or before any payment is made.

Who has to issue an IR35 Status Determination Statement? +

Only medium and large companies are required by law to issue an SDS. Small companies are exempt — if your client is a small company, IR35 status determination responsibility remains with your PSC. From 6 April 2026, the small company threshold increases, meaning around 14,000 additional companies will become exempt.

What happens if a client doesn't provide an SDS? +

If a medium or large client fails to provide an SDS, the PAYE liability shifts to that client. The SDS must also include reasons — a bare conclusion without explanation does not satisfy the requirement. HMRC can transfer liability up the chain until it reaches whoever failed in their duty.

Can a contractor challenge an SDS? +

Yes. Contractors have a legal right to raise a disagreement. The client must respond within 45 days with either a maintained or revised determination and reasons. If the client does not respond within 45 days, liability transfers to them.

Do small companies need to issue an SDS? +

No. Small companies are exempt. From 6 April 2026, the thresholds rise to turnover under £15m, balance sheet under £7.5m (with fewer than 50 employees unchanged), bringing around 14,000 more companies into the small company exemption. If your client is newly small, they no longer issue an SDS and you determine your own IR35 status.

Is an SDS required for every contract? +

Yes, for every engagement with a medium or large client. Each new contract requires a fresh SDS. An SDS from a previous engagement does not carry over. If working arrangements change materially mid-engagement, the client should review and reissue if the determination changes.

What's the difference between inside and outside IR35 SDS wording? +

For outside IR35, the SDS states the rules do not apply and the contractor retains responsibility for their own tax. For inside IR35, it states the rules apply and that PAYE deductions will be made on the deemed payment. Both versions must give reasons. Use the templates above for the correct wording for each scenario.