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SDC – The HMRC Challenge

Three ways the Revenue raises the SDC hurdle

There are actually additional hurdles to overcome on this SDC test that make things even trickier, rendering the above definition as only half of what you need to know. Three of those hurdles include:

  1. Any person can subject you to SDC and therefore set you up to fail the test, and this means anyone not just the end user.
  2. If anyone even so much as has the “Right of SDC” to hang over them, you may fail the test, it doesn't even have to be pursued or enforced but merely be an existing power.
  3. Pay close attention to the language and you'll see the word “or” rather than “And” between the aforementioned terms. This means just one of three by itself could cause you to fail their test.

'DSC': Despondency, Simplicity, Clarity

These three troublesome terms in this law bear the appearance of having left many contractors despondent, giving up. The same can be said of even broad comments made by HMRC in the recently closed document on SDC. For example HMRC makes the following claim:

Where there are procedures, methods and instructions which must be followed, it is likely there will be SDC over the manner in which the services are provided.”

This is a very two-dimension and oversimplified view at best. Just briefing your workers should not be grounds for the one briefing to be allowed enact SDC over that individual. You can see this for example in Staples vs. the Secretary of State for Social Services. There are other cases that shed light on this problematic legislation, which you'll see more of below. Before you give up all hope, however, remember that the HMRC has asked for comments about their SDC definitions. Further consultation on this matter, HMRC clarifies that these contractors' arrangements will be considered in terms of both contractual and actual work performance, similar to IR35. This is good news and welcome clarification.

Steps you can take to stop SDC

Contractual review

This requires careful examination of every contract that you take on. This means that you'll be dealing with upper and lower levels of your contract, however, contractors are generally not allowed to see the upper level because of the confidentiality issues it holds. Because of that it is imperative to make sure that you insist that whoever you're working with inserts a special clause that requires upper and lower level arrangements to match exactly. You must further assert that you'll be allowed to sue if this agreement is not honoured.


The best advice we can give them is to draw a sort of SDC-Specific document that confirms all of your arrangement with every contract. This will help clarify the SDC matter concisely. This works by specifically outline in all your contracts that SDC provisions do not apply in your current arrangements. This could become a standard CoA document signed by both the contractor and the client every time.

Another useful document to keep in stock might be a full “Anti-SDC” kit of sorts. This will also double as your “Anti-IR35”, think of it is bureaucracy repellent. This would include all email interactions between you and the client especially those in which the client requests “urgent” or emergency services that go beyond your standard contract. This will help show that you won't just be moved around at your client’s whims. You should also keep any documents handy that describe your requirements and specifications in the work you do for the client. Keep these vital documents around for any contract you engage in end clients and/or agencies. 


If you're willing and able to pay you can build up an additional layer of dense with insurance that they may help protect you from mishaps with this in the future. At least look into available insurances especially see as how any requested withdrawal from tax relief based on expenses for these SDC contractors will fall under the jurisdiction of a PAYE investigation.


Finally, it's always important to arm yourself with the knowledge of case law. There's surprisingly quite a bit of a case based on these precedents to show the contractor's side of the issue. It also shows how rarely, especially specialist contractors can be controlled as SDC and HMRC are trying to insist upon.

Take for example the case of Morren v Swinton & Pendlebury Council where the judge recognised that supervision and control could hardly be used for a contractor with highly specialized skills and experience as a test. The ESM7025 manual laid out by HMRC itself states: “control over how a job is done can only be exercised where there is scope for it.”

A large number of tax tribunals in 2011 also involved this control test. Marlen Ltd, a Mr Hughes (a contractor) at JCB had received briefs by his appointed project manager and this supervisory figure outline the exact specifications of every that they were going to build. The engineering manager even stated that their project leaders would brief the contractor and there he would be under their control. 

The only control exercised, however consist of occasionally checking to oversee the project and check on its current progress. Mr. Hughes was forced to report daily for specifications and instructions from the senior designers. He was also only working on a small piece of the overall project to be completed. It had to be coordinated with the other efforts in order to fit into the final product, which could have been achieved by strict control and direction from management. It was ruled then that the degree of control had to considered based on the actually work that was being done.

Finally consider the case of Primary Path Ltd where the judge once again explained how the idea of control could be a complicated issue in the case of someone with specialized skills working as a specialist. It was decided then that the contractor could only be subject to control to the point where it was absolutely necessary for the completion of the final product according to management specifications. Meaning then that the level of supervision or control exercised did not exceed what someone should expect when hiring an independent contractor. So once again HMRC lost.


Taxman can’t be a law unto himself

Of course tax tribunals alone are not enough to set a solid legal precedence. They can offer of a useful set of guidelines, however, it is the courts who interpret and answer the question of control, which is tied into SDC terms. The good news is that this department won't be able to simply apply and interpret these guidelines to suit their own case. The courts would never allow it.

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