What does it mean to take reasonable care?

End-Hirers must now shift their efforts to ensuring compliance with the new standards and become comfortable with the necessity to demonstrate Reasonable Care now that IR35 in the private sector has been confirmed. While Expire-Hirers must use reasonable care when determining the IR35 status of their off-payroll employees, this obligation does not begin and end in April 2021, but will continue perpetually.

In the run-up to the April 2020 roll-out deadline, many End-Hirers have already completed an IR35 Audit and issued Status Determination Statements to contractors, but this does not mean no more work is required. End-hirers must verify the information gathered at the outset and handle any changes in contracts or working practises.

HMRC's internal Employment Status Manual (ESM10014), which is currently in draught form, states unequivocally that End-Hirers must examine previous individual determinations to ensure they are valid and accurate, and that if modifications are found, a new Status Determination Statement must be provided.

End-Hirers who do not examine IR35 Status on a regular basis, or who make inaccurate status decisions without exercising reasonable care, risk HMRC imposing harsh penalties, which will include unpaid taxes, interest, and penalties. This means that, in addition to any unpaid taxes, End-Hirers may be subject to significant fines for failing to exercise reasonable care.

SETTING THE STANDARD FOR REASONABLE CARE

HMRC defines Reasonable Care as acting in the manner that a sensible and reasonable person in the End-position Hirer's would expect. HMRC understands that End-Hirers' circumstances will differ substantially based on their abilities, expertise, and circumstances. As a result, the bar for larger multi-national corporations to clear the Reasonable Care threshold is substantially greater than for smaller corporations.

End-Hirers have the following alternatives for proving Reasonable Care when conducting IR35 Assessments:

• CEST (Check Employment Status for Taxation) - The technology developed by HMRC has been highly panned and labelled as unfit for purpose. Because HMRC has declined to stand by CEST's decision in the RALC Consulting Ltd case, it's difficult to trust CEST to meet your IR35 demands.

• Use a different ‘IR35 Tool' - Many of the current ‘Tools' on the market are automated and produce a result after a system has calculated all of the responses. As a result, End-Hirers must assess how accurate a system may be when it comes to complex tax and employment regulations that hasn't taken into account their unique circumstances. The question of whether this strategy would be considered Reasonable Care is obviously a big one.

• End-Hirers may choose to conduct internal IR35 examinations of their off-payroll workforce, taking into account both contracts and working procedures. This can be a time-consuming process, and complications may occur if the team has the necessary skills, expertise, or experience to deal with all of the additional responsibilities. IR35 is a complicated tax law, and few End-Hirers will have the in-house competence needed to conduct efficient internal assessments. If an End-Hirer chooses this path, we advise them to ensure they have a thorough understanding of IR35 and to employ resources that are primarily focused on IR35 compliance.

• External Assessments — Hiring outside IR35 experts to review your off-payroll employees is the best way to ensure that the reasonable care standard is met. Both contracts and working practises will be extensively examined by independent specialists who will be able to provide you with detailed information and guidance, as well as provide you with ongoing assistance during the transformation process. External IR35 specialists are also in a better position to conduct refresher reviews and spot changes in working procedures that could otherwise go missed. According to HMRC's recommendations, "seeking the opinion of a qualified, professional advisor" proves that you have exercised reasonable caution. However, be sure that anybody you hire to provide you, counsel, is sufficiently qualified to give you advice on IR35 and employment status, and that they are a member of a relevant professional organisation.

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