Under the Off-Payroll Working (IR35) rules, understanding what is ‘Reasonable Care’ is essential. Reasonable care refers to the diligence a business must exercise when determining the employment status of a worker for tax purposes. Taking reasonable care in determining whether a worker falls inside or outside IR35 is critical, and failing to do so could lead to financial, legal, and reputational risks. Here’s a look at what reasonable care means, and why it matters for IR35 compliance.

Key components of Reasonable Care

• Thorough and case-by-case IR35 determinations
  A core aspect of what is reasonable care involves carefully assessing each worker’s IR35 status based on their specific contractual terms and actual working practices. Each contract must be considered individually – blanket determinations applying the same status to all contractors without distinction do not meet the standards of reasonable care, and may come under the scrutiny of HMRC.
• Maintaining complete and accurate records
  A vital aspect of reasonable care is maintaining detailed documentation throughout the assessment process. This includes records of factors considered, why particular decisions were made, evidence of the working relationship, and how the business reached its conclusion for each worker’s IR35 status. This transparency helps demonstrate a well-considered approach.
• Effective communication and transparency
  Communicating IR35 determinations clearly through a Status Determination Statement (SDS) and sharing this with the worker and any other relevant parties in the chain that you contract with is key. The SDS should specify the IR35 status decision (inside or outside), and provide the worker with a clear understanding of the reasons behind it.
• Ongoing monitoring and reassessment of IR35 status
  Reasonable care is not a one-time effort but a continuous process. If there are significant changes in a worker’s role, responsibilities, or contractual terms, you are required to reassess their IR35 status accordingly. Any failure to review status in light of changed circumstances can be seen as a lapse in reasonable care.
• Training staff and involving relevant departments
  Ensuring that all staff members involved in the determination process are trained on IR35 rules is an important part of what is reasonable care. This may include training for HR teams, compliance staff, and contract managers. Collaborating across departments to obtain an accurate understanding of roles and contractual details helps reinforce compliance.
• Seeking expert advice and support
  Given the complexity of IR35, consulting with specialists when needed will assist you in demonstrating reasonable care. Using expert services, like those offered by Bauer & Cottrell, can provide deeper insights, especially in challenging cases where an in-depth analysis is required to ensure compliance.
• Staying up-to-date with HMRC guidance
  Compliance with IR35 requires staying current with any changes in legislation or HMRC guidance. Regularly reviewing resources, such as HMRC’s Employment Status Manual, helps ensure that the assessment process aligns with the latest standards. This additional layer of diligence can reinforce your reasonable care practices.

Consequences of not taking Reasonable Care

If your organisation finds itself subject to an HMRC IR35 check or audit, and HMRC finds that reasonable care was not taken in compliance with the Off-Payroll Working rules, it could result in:

• Tax Liability: your business may be liable for unpaid taxes and National Insurance contributions (NICs) if reasonable care was not demonstrated.
• Penalties and interest: HMRC may impose penalties and interest on backdated tax payments for non-compliance.
• Reputational damage: non-compliance can harm your business’s reputation with clients, contractors, and HMRC, potentially impacting future opportunities.

You can read more on HMRC’s expectations and examples of what is Reasonable Care here.

How Bauer & Cottrell can help you meet your Reasonable Care obligations

Our IR35 Status Determination Service ensures that every assessment is conducted with due diligence, meeting HMRC’s reasonable care standards at each step. We also offer IR35 Training to help you better manage your compliance in-house.  Learn more about our IR35 services for engagers to see how we can support your business’s compliance.

Visit our IR35 Hub for more in-depth resources, guidance, and insights to help you navigate IR35 compliance with confidence.