Off-Payroll Working: How to take “reasonable care” when making a status determination

IR35 changes postponed to 6 April 2021

Update to this article made on 18th March 2020

In the unusual times we find ourselves in, the Government has decided at the 11th hour to postpone the introduction of the new off-payroll working rules (which were going to replace IR35 for medium and large private sector organisations) to 6 April 2021 in an attempt to alleviate the economic pressures currently faced as a result of the Coronavirus. This delay comes just one week after its announcement in the Budget that the new legislation would be coming into force this April. The Government has confirmed that the delay is a deferral only and not a cancellation and that they remain committed to introducing the policy next year. Employers now have another year to prepare for the reform and understand their responsibilities in assessing the tax status of individuals working through intermediaries. Our experience is that many clients were not as prepared as they wanted to be so this additional time will be useful for more than one reason. For those who were already organised for this, the internal disciplines that you were already planning to introduce around your use of consultants – for example deciding whether you would be willing to accept a substitute or not – could still be implemented.

Devonshires is still on hand to help within any queries you may have, and remain contactable by phone and email. If you have any queries please contact Jane Bowen on 020 7880 4207 or Kirsty Thompson on 020 7065 1847.


One of the key aspects of the new off payroll working rules is the obligation on the client to determine the status of a contractor providing services through an intermediary. The client is under an obligation to take “reasonable care” in determining status and if it fails to do so then the client will be responsible for making the tax and NIC deductions and (if necessary) paying the apprenticeship levy.

HMRC has released draft guidance on what it means to take “reasonable care” and have confirmed that clients can satisfy this requirement if they “act in a way that would be expected of a prudent and reasonable person in the client’s position”. While each client has a responsibility to take reasonable care, HMRC considers that what is necessary for each client to discharge that responsibility is to be viewed in light of their abilities, experience and circumstances.

For example, a client with a small, straightforward workforce may only need a simple regime provided it is followed accurately, whilst a client with a larger and more diverse workforce may require a more sophisticated system. But a client with limited abilities or experience should still take care to understand the regime or seek appropriate advice.

Examples of behaviours that would indicate reasonable care has been taken would include but are not limited to:

  • Accurately completing HMRC’s Check Employment Status for Tax (CEST) tool and keeping a record.
  • Applying HMRC guidance on determining status.
  • Seeking the advice of a qualified, professional advisor.
  • Involving someone who understands 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.
  • Making a new status determination if there are any material changes to a worker’s terms and conditions, or working practices.
  • Reviewing determinations by other parties (as the client remains responsible for the accuracy of the determination process regardless of who carries out the determination).

Whereas examples of behaviours that would not constitute reasonable care include but are not limited to:

  • Making blanket decisions assuming that every worker is caught by the rules without considering specific facts of individual cases.
  • Determining that the rules apply to a large group of workers without considering the working arrangement of each worker and whether their terms and conditions are the same.
  • Not reviewing determinations following a material change in circumstances.
  • Absence of support/training for those responsible for making status determinations.
  • 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.

Clients must be alert to the fact that satisfying just one of the reasonable behaviours listed above will not fulfil the requirement to take reasonable care. Furthermore, reasonable care should still be exercised where the client is going to be the fee-payer anyway. Clients should retain an audit trail of how they undertook the status determination in an individual case and consider how they could implement a process of reviewing determinations on a periodic basis. However there then also needs to be an understanding of what the client would seek to do if a review indicated that the status was the opposite to what it was deemed to be before. That may not mean that the client failed to exercise reasonable care first time around, as the arrangement may have naturally changed over time. But if for example the arrangement was originally deemed to fall ‘outside’ OPW and following the review now falls ‘inside’, then the fact that tax and NICs now need to be deducted may cause problems from a contractual perspective (does the client have the contractual right to do so) and/or an operational perspective (is the contractor going to want a higher fee to offset the tax/NICs deductions and will they walk if they don’t get it).

How can we help?

If you’d like any assistance in status determination then please contact a member our Employment and Pensions Team or call 0207 880 4263.

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