Why re-reviews are needed to maintain your reasonable care obligation
Whilst many organisations are just coming to terms with the impact of IR35 in the Private Sector, following the delayed implementation date of 6th April 2021, it should be recognised that the IR35 obligations haven’t ended and all public sector authorities and medium to large private sector organisations have an ongoing obligation to demonstrate reasonable care.
What is Reasonable Care?
Reasonable care is defined as acting in a way that would be expected of a prudent and reasonable person in the client’s position. HMRC recognises that the means and circumstances of clients will vary greatly, therefore what is necessary for each client to discharge their responsibility must be viewed in the light of their abilities, experience and circumstances. For example, there will be a higher degree of care to be taken by a large multi-national company with its own internal finance function compared to a much smaller entity.
Reasonable Care – Post April Considerations
Now that many organisations have undertaken the arduous task of assessing all incumbent off-payroll workers from an IR35 perspective, focus should now be switching to how to implement the IR35 into ‘business as usual’ and what steps/actions need to be undertaken to continue to demonstrate Reasonable Care. There are a number of actions you need to comply with to demonstrate reasonable care, and we have detailed some specific considerations below:
- Ensure a new IR35 review is undertaken for any new roles/contractors that haven’t previously been assessed;
- Ensure the determinations you have made are accurate;
- Regularly assess Status Determination Statements (“SDS”) to ensure they remain up to date and accurate – A good time to do this, is when issuing the SDS to a new contractor;
- If there is any material change to a contractor’s terms and conditions or working practices, the client should undertake a new assessment;
- Regularly reviewing your processes, and amend where necessary;
- Sample check SDS’s every 6 months in order to ensure they remain up to date, accurate and a true reflection of the reality of the engagement; and
- Provide training sessions for employees and stakeholders involved in the IR35 process and those employees to who contractors report to.
All of the above are useful factors in helping client’s evidence they are continuing to demonstrate Reasonable Care. In the event that a client fails to take Reasonable Care in the eyes of HMRC, they assume responsibility for the deduction of tax and NICs, and the payment of the apprenticeship levy and pay these to HMRC along with interest and penalties.
What doesn’t constitute Reasonable Care?
Whilst most organisations will now be familiar with those actions which will not constitute Reasonable Care it is worth revisiting these. These actions include:
- Making blanket determinations on all, or large proportions, of your workforce;
- Incorrectly grouping workers or roles together for the purposes of an IR35 Review;
- Making a determination based on incorrect information;
- Ignoring any changes to contractual terms or working practices, thus rendering the original SDS inaccurate;
- Treating IR35 and Reasonable Care as a one-off event by not continuing to provide IR35 training and support to staff and failing to review, audit and re-assess your processes and determinations;
- Failing to ensure that the person tasked with completing IR35 reviews possess the knowledge required and is provided with the required level of training and support; and
- Not retaining control and input into the IR35 review process and production of SDS’s but instead relying on an external service provider.
It is really important to consider whether you have the right processes in place to continually demonstrate reasonable care and meet the legislative obligation.
Periodical Sample Re-reviews
Periodical sample re-reviews are a great way to help you ensure SDS’s remain up to date and accurate and evidence that you are satisfying your reasonable care responsibility. We know that over time subtle changes can occur to contracts and working practices, which often go unnoticed. Furthermore, by having a ‘fresh pair of eyes’ assess the current reality of the situation enables inaccuracies in SDS’s to come to light (regardless of how minute) and/or in those instances where it is proven SDS’s are accurate, by undergoing such as process it will provide you with assurance and confidence that you are meeting your Reasonable Care obligation.
We recommend that 25% of SDS’s are reviewed on a 6-monthly basis. This means that over a 2-year period, clients would have re-considered all of SDS’.
Need our help?
IR35 doesn’t just end once the initial IR35 assessments/audit is complete. It is an ongoing process that needs to be managed and maintained effectively. We are currently in the process of finalising initial IR35 audits for a number of clients and commencing periodical audits for other clients. If you are unsure of the best way to manage your ongoing IR35 obligation and need advice from experts, get in touch with Brookson Legal to find out how can help your business.