Understanding your obligations in the supply chain

The countdown to the IR35 legislative changes is well underway and now is the time to ask, how ready are you?

Whether you are the end-hirer, fee payer or contractor, all parties have a role to play in the run-up to April 2021 and beyond.


I’m sure you’ve all heard by now that from 6 April 2021 if you are a medium/large private sector organisation you will have to assess the employment status of your off-payroll workers. So, what does that mean?

Well firstly, it is worth noting that there is an exemption for end-hirers who are defined as “small businesses”. If your company satisfies 2 of the following 3 criteria, it will constitute a small business and will therefore not bear the responsibility for the IR35 determinations once the legislation comes into force on 6 April 2021; the responsibility will remain with the Contractor:

  • Turnover of no more than £10.2 million
  • A balance sheet total of no more than £5.1 million
  • No more than 50 employees

However, if you do not satisfy the small business exemption, you will assume the IR35 responsibility when the changes come into force next year. It is advised that you notify your contractors of the size of your business as soon as possible to avoid any ambiguity on where the IR35 responsibility lies.

The IR35 responsibility requires you to take reasonable care in assessing whether a contractor is working in a truly self-employed manner (i.e. outside IR35) or more like a disguised employee (i.e. inside IR35). To do this, you need to consider the day to day working practices and the contract for services which governs the assignment.

Once you have reached your determination, you must confirm the IR35 status of an assignment by providing a written Status Determination Statement (SDS) to the contractor and, if there is one, the recruitment agency (known as the fee payer).

The requirement to exercise reasonable care is an ongoing obligation and it is recommended that you regularly consider and re-review determinations to ensure they remain accurate.

Finally, the legislative changes coming into effect on 6 April 2021 provide contractors (and fee payers) the opportunity to challenge the IR35 determination reached by the end-client and submit supporting evidence for such challenge. Upon receipt of a challenge, you have 45 days to consider the evidence; at which point you must inform the contractor and/or fee payer if your initial determination has been overturned, and therefore provide a new SDS, or whether your determination is correct and the decision remains unchanged.

In order to beat the clock, retain the best talent and ensure key projects suffer as little disruption as possible, you should start your IR35 preparations now if you haven’t done so already.

Fee Payers

Whilst end-clients will be the entity making the IR35 determinations, the fee payer also has obligations. So, who is the fee payer?

In simple terms, if you are the entity in the supply chain who is paying the contractor’s limited company you will be the fee payer. In most instances, this is likely to be a recruitment business. However, here is a list of the qualifying conditions:

  • You are resident in the UK or have a place of business in the UK
  • You pay an intermediary that is controlled by the worker, e.g. a Personal Service Company
  • You are not controlled, or no material interest is held, by a contractor for whom a determination relates

So, you are the fee payer, what do you do now?
Start talking to end-hirers to ensure they work with you to put clear and unambiguous SDSs in place as soon as possible.

Additionally, you are likely to be the entity closest to the end-hirer and the contractor, assisting both entities through the IR35 process can help make it more streamlined and ease any concerns. For example, as discussed above, the size of the end-hirer organisation is important when determining who holds the IR35 assessment responsibility. This information is likely to be passed from the end-hirer to the contractor via you.

Also, when you receive an SDS from the end-client you must consider the determination reached before paying the contractor accordingly. If the end-client has determined a role to be inside IR35 you must ensure the necessary PAYE deductions are made and pay those contributions to HMRC. If the end-hirer has determined the role to be outside IR35 you need to be sure that they have undertaken a correct assessment, or you could carry some PAYE risk.

If you have not received a determination, or you do not satisfy the fee-payer qualifying criteria, you should not make any deductions.

If you disagree with an SDS you can raise a challenge at any time until the last payment is made for the contractor’s services. As explained above, you should submit evidence in support of your challenge and the client will have 45 days in which to respond.

It is important to note that until a client responds, the initial determination will apply and should be followed.


Whilst the legislative changes coming into force will have a big impact on the private sector, it is important to realise that the employment status “tests” are not changing. The factors you have been responsible for considering since IR35 was introduced in 2000 remain the same, what is changing is who is responsible for the assessment. From April 2021, if your client is a small business, you will need to continue to assess the impact of IR35 on your engagement, in the same way that you do at present. Whereas, if your client is a medium/large private sector organisation they will be determining whether your assignment is inside or outside IR35 by considering the same tests you have considered up until this point.

Whilst your client is not obliged to notify you if they are a small client, it would be prudent for you to enquire so that you understand whether the responsibility remains with you or whether the responsibility is shifting to your client, and ultimately, what determination they have reached.

What can you do to help?
Whilst you can’t make the determination for your client, you can be receptive to the process, understanding that as the end-hirer they must go through this. Upon receiving a determination, if you believe the client has erred in its decision, you can raise a disagreement via the challenge process discussed above and be ready to provide evidence to support your challenge.

So, your client is a medium/large organisation but it has not provided you with an SDS. What can you do?
If your client has not provided you with an SDS, or there are no whisperings of IR35 across the client’s organisation, you may want to ask your client about the IR35 process they are undergoing and ultimately when you will receive your determination.

What about now?
Until 6 April 2021, your PSC remains responsible for making its own IR35 determinations. Therefore, particularly with any assignments concluding prior to April you should be proactive in your IR35 assessments but recognise that assignments spanning April may be decided upon by your client sooner rather than later.

It may also be important to note that HMRC has committed not to use information acquired as a result of the changes to IR35 rules to open new compliance checks for previous tax years unless it has reason to suspect fraud or other criminal behaviour.

To conclude, regardless of the role you play in the supply chain the clock is ticking and with other events happening in the world right now, this tax change may feel like a long time away. But, as we said in the run-up to April 2020, every week before 6 April will be precious to this process and you should act now to manage your IR35 journey effectively and efficiently.

How we can support you

Brookson Legal is a team of specially trained legal professionals, regulated by the Solicitors Regulation Authority, and we have more than 20 years of IR35 experience. We can help you prepare for April 2021, enabling end-hirers to identify the employment status of the contractors it engages and ensure the right systems and processes have been implemented so that IR35 becomes BAU going forward. Contact us now to find out how we can help.