Reasonable care

IR35: What is ‘reasonable care’?

Posted on 3rd July 2020 by

Caunce O'Hara - What is IR35 Reasonable care?
From April 2021, end-clients engaging with contractors in the private sector will be legally responsible for determining IR35 status, in the same way that end-clients in the public sector currently are.

Following an IR35 assessment of a contractor, an end client as the decision-maker must produce a Status Determination Statement (SDS). This written determination will outline whether IR35 applies to the engagement and the reasons for coming to this conclusion.

It’s when producing an SDS that ‘reasonable care’ must to be taken. This means making a fair and well considered decision for each contract assessed.

The degree of reasonable care that needs to be taken is affected by the capabilities and experience of a client. For large international clients, a high degree of care is expected by HMRC whereas for a smaller company without their own finance department, the degree of care they’re able to provide may be reasonably less.

Do blanket decisions demonstrate reasonable care?

It is likely that blanket decisions or assessments on groups of people, instead of working on a case-by-case basis, will not demonstrate ‘reasonable care’. Consideration to the specific facts of each individual case must be taken. In some instances, where the contracting population can easily be segmented into groups with identical contracts or working practices, a blanket decision may be acceptable.

What happens when reasonable care is not taken?

For a contractor, a lack of reasonable care can have a damaging affect on their livelihood. If a blanket ‘inside IR35’ decision is made without considering a contractor’s personal circumstances, honest and reliable contractors, genuinely working outside of IR35, can be given an unfair and inaccurate assessment.

The consequences of that assessment could leave a contractor with no choice but to become a Pay As You Earn (PAYE) contractor and potentially face a significant reduction in their take home pay. It could prompt a contractor to look for a role elsewhere which could result in a loss of talent for end clients.

A situation like this will feel unjust to a contractor and they may choose to appeal on the grounds that the decision is not personalised to their exact arrangements.

For the end client, if it’s found that reasonable care is not taken, they become responsible for deducting tax and national insurance and paying these to HMRC.

Fee-payers are not directly responsible or liable for providing reasonable care. If reasonable care is established but HMRC still challenge the assessment and take the individual case to

tribunal and subsequently win, the fee-payer is responsible for the unpaid liabilities of tax and NIC, which in a traditional supply chain would be the agency.

This means that even if the end-client establishes reasonable care but still gets the determination wrong, the fee-payer is liable.

The steps to taking reasonable care

In HMRC’s guidelines, the following points are outlined as examples that suggest reasonable care has been taken:

· Accurately using and keeping a record of the employment status principles.

· Efficiently completely HMRC’s Check Employment Status for Tax (CEST) tool.

· Using HMRC guidance on determining status

· Seeking the guidance of a qualified, professional advisor

· Having someone with a good understanding of the work to be undertaken involved in the determination process.

· Checking the current individual determinations to ensure they remain valid/accurate

· Reviewing the processes being used and adjusting them for future determinations where required.

· Making a new status determination if there are any material changes to a worker’s terms and conditions or working practices.

· Checking and reviewing the processes of other parties where they subcontract the determination process to another party. The end client remains responsible for the accuracy of the SDS, despite whether or not it subcontracts that responsibility to another party.

The following examples are listed on

Example of a client taking reasonable care

“A large, non-public sector company needs to make a SDS in relation to the off-payroll working rules. They ensure that those making the SDS have a good understanding of the working arrangements to which the SDS relates. They also ensure that HMRC guidance on employment status is applied and CEST is used in accordance with guidance and answered accurately based on the information they have.

The business has staff in similar roles but where the terms and working practices do differ. The business ensures that the determination for this role is based on its own facts and do not determine the outcome based on the other roles. As the company has taken prudent and reasonable steps when determining whether the off-payroll working rules apply, they would be considered to have taken reasonable care.”

Example of a client not taking reasonable care

“A medium, non-public sector, company engages an agency to supply workers. The workers supplied by the agency operate through their own PSCs. The client decides not to take any steps to prepare for the introduction of the off-payroll working rules. They elect to simply

determine that all workers who provide their services through a PSC will be caught by the new rules, because they undertake similar roles and are engaged under similar terms and conditions. They do this, believing that this will protect them from any liability to pay tax and NICs on payments to those workers. The client passes the same SDS to every worker and the agency.

Even though the client has determined that the off-payroll working rules apply to the engagement, and passed on the SDS to the worker and agency, as the company has not taken prudent and reasonable steps when making their determinations, liability rests with it. The client has not considered the status of the workers contracting under different terms and conditions, so they have not satisfied the condition to take reasonable care. The responsibility for the deduction of tax, NICs and apprenticeship levy, and paying these to HMRC, rests with the client.”

Caunce O’Hara offer a range of IR35-based insurances and an IR35 Contract Review service. Through our partners at Markel Tax we can also offer you expert advice regarding IR35 taxation.

For further information please call 0333 321 1403.

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Sources:, (2020) Employment Status Manual. [online] [Accessed June 2020]

Related Articles:

What is a Status Determination Statement (SDS)?

What are contractor blanket decisions and why do companies use them?