New draft guidance relating to IR35 reforms published by HMRC - what is 'reasonable care'?

10 February 2020

After much anticipation, and a technical glitch which meant that information was provided and then swiftly taken away as it was published too early, HMRC has finally released comprehensive guidance in relation to the IR35 reforms that will be implemented from 6 April 2020.

Substantial ground is covered but four areas which have been discussed in much detail include defining ‘reasonable care’, Status Determination Statements (SDS), the client-disagreement process and outsourced service.

An overview of ‘reasonable care’ is as follows.

Reasonable care

There has been much emphasis on the fact that clients must employ ‘reasonable care’ when making the decision as to whether or not a worker would have been classed an employee, had they been engaged directly, and not through an intermediary. Whilst there has been high-level discussion of what would satisfy a definition of ‘reasonable care’, nothing has been as informative as the guidance provided on the topic by HMRC this week.

To neglect to use ‘reasonable care’ can leave the client responsible for tax and NIC liabilities, along with payments relating to the Apprenticeship Levy.

HMRC will consider ‘reasonable care’ in light of a client’s abilities, experience and circumstances, so higher levels of care would need to be undertaken by large multi-national companies than by  much smaller businesses with less access to resource.

A Statement Determination Status (SDS) needs to be completed for each relevant employee and records of them need to be retained to demonstrate how each decision was reached.

Examples of sufficient ‘reasonable care’ being taken are listed, but the list is not exhaustive:

  • Accurately applying and keeping a record of the employment status principles (ESM0500).
  • Accurately completing HMRC’s Check Employment Status for Tax (CEST) tool
  • Applying HMRC guidance on determining status
  • Seeking the advice of a qualified, professional advisor
  • Having someone with a good understanding of the work to be undertaken involved in the determination process
  • Checking existing individual determinations to ensure they remain valid/accurate.
  • Reviewing the processes being applied and amending for future determinations where necessary
  • If there are any material changes to a worker’s terms and conditions, or working practices, making a new status determination
  • Ensuring the checking and reviewing of processes of other parties where the determination process is subcontracted to another party. The client remains responsible for the accuracy of the SDS even if it subcontracts that responsibility to another party

Examples of behaviours which do not display ‘reasonable care’ are:

  • Determining that every worker who provides their services through an intermediary is caught by the off-payroll working rules without giving any consideration to the specific facts of each individual case
  • Determining that the off-payroll working rules apply to a large group of workers who have some variations between the work that is being carried out, without giving proper consideration to the different working arrangements for each worker
  • Failing to reconsider determinations where there has been a material change in circumstances
  • An absence of any proper support or training within the organisation to enable those individuals responsible for making determinations to properly consider the off-payroll working rules
  • Inputting inaccurate information into CEST
  • Failing to take into account all relevant evidence
  • The person tasked with completing the SDS does not possess the knowledge required to complete it and is not provided with the required level of support
  • The client subcontracts the SDS process to another party and does not confirm the accuracy of that conclusion and the reasons for it

There is the note for consideration that a client can make a determination for a group of workers on the proviso that they are engaged under the same terms and conditions, but where these differ, separate determinations need to be made.

There are some illustrative examples on the classification of what would be ‘reasonable care’ and what wouldn’t, within the guidance.

CIPP comment

The guidance is still in its draft form at the time of writing, so if you have any feedback in relation to the content of the guidance to accompany the IR35 reforms, particularly on the area of ‘reasonable care’, then please get in touch with Samantha Mann at [email protected].


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