What is SDC?



SDC – part of HMRC’s fight against tax avoidance

Supervision, Direction or Control (SDC) is a part of HMRC’s fight against tax avoidance. SDC test is used in certain circumstances by HMRC to determine a worker’s employment status. According to the ‘agency legislation’, a worker’s SDC status is used to decide whether or not they have their income tax deducted at source via Pay As You Earn (PAYE). As a result, SDC plays a significant part in HMRC’s fight against tax avoidance.

The test is now also used to determine an umbrella contractor’s eligibility for tax relief on travel and subsistence expenses, resulting in a significant administrative burden for umbrella companies.

More than just keeping you compliant

SDC poses a major problem for umbrella companies tasked with testing large numbers of contractors to remain compliant.

SDC Testing combines expert knowledge of employment and tax law with software development expertise to ensure efficiency and accuracy, whilst saving your umbrella company time and hassle.

We not only keep you compliant, but we help you achieve clarity and peace of mind. Meanwhile, your contractors get to claim their expenses and take home more pay.

HMRC guidance

HMRC provides guidelines to help umbrella companies identify when a contractor’s working arrangement might fall under the scope of SDC. According to HMRC:


is someone overseeing a person doing work, to ensure that person is doing the work they are required to do and it is being done correctly to the required standard.


is someone making a person do is/her work in a certain way by providing them with instructions, guidance or advice as to how the work must be done.


is someone dictating what work a person does and how they go about doing that work.

As hard as HMRC has tried to simplify and define SDC, it remains an incredibly complex subject. Each interpretation is based on decades of employment case law, and so umbrella companies are strongly advised to seek expert assistance when dealing with SDC.

Relevant legislation


Social Security (Categorisation of Earners) Regulations 1978 (Schedule 1, Part 1, paragraph 2)

Income Tax (Earnings and Pensions) Act 2003 (Part 2, Chapter 7, section 44(2)(a)

These form the basis of what is known as the ‘agency legislation’, which determines that the contractor be placed on a payroll and subject to income tax deducted at source via PAYE if they are deemed to be under SDC.

The history of SDC

The element of ‘control’ first appeared

The element of ‘control’ first appeared in a 1968 court case (Ready Mixed Concrete Ltd v Minister of Pensions and National Insurance) where it was determined that a contract of service exists if the contractor: “agrees expressly or impliedly that in the performance of service he will be subject to the other’s control”.

The emergence of SDC

Elements of SDC began to emerge more frequently within legislation and case law (see following section). It then became a vital element of the ‘agency legislation’, which determined workers be subject to income tax deducted at source via PAYE if the absence of SDC could not be proven.

Agency legislation updated

The agency legislation was updated in 2014 when it was ruled that agencies and employment intermediaries must provide quarterly reports to HMRC of any workers they hire that are not subject to income tax deducted via PAYE.

SDC grip tightens

Most recently, the administrative burden for umbrella companies increased further with the decision to use SDC to determine contractor’s eligibility for tax relief on travel and subsistence expenses.

How do I get started with SDC Testing?


With potentially thousands of contractors on your books, you’ll have little time to waste. Getting started with us couldn’t be any more straightforward.

Register now

Request a call back…

Find out how SDC Testing will keep your contractors compliant. Just fill in your full name, email address and phone number and we’ll be in touch.

Please enter your details: