Are you taking reasonable care? One of the most important parts of the reform to off-payroll working is for the client to ensure that they take reasonable care when making a determination on the status of the worker. There’s an awareness of this important topic but it seems to be overlooked or in some cases completely ignored.
For a client who doesn’t take reasonable care the consequences can be very serious. The liability for payment of tax and NICs, as well as apprenticeship levy, will sit with the client. That liability will stay with the client unless it takes reasonable care in reaching its conclusion. That risk and exposure could be heightened based on the number of contractors in the organisation.
As we saw in the public sector and in the lead up to the private sector reform earlier this year, customers who didn’t take reasonable care in reaching their determination lost the ability to engage some of the best available talent on the market.
Definition of reasonable care
One of the issues previously was that there wasn’t a very clear definition of what reasonable care means in the context of off-payroll working rules. Fortunately, that has been made rather more certain of late with HMRC updating guidance on this specific point on 17th September 2020.
Reasonable care means clients should act in a way that would be expected of a prudent and reasonable person in the client’s position.
Examples of not taking reasonable care
The first example that HMRC provide in their guidance on this topic is as follows:
- determining that every worker who provides their services through an intermediary is caught by the off-payroll working rules without giving any consideration to the specific facts of each individual case.
We’ve all seen and heard of many examples of this type of behavior and it’s something where we need to work together to stop. It starts with education, ensuring that clients understand the risks associated with this type of behavior. The next thing we can all do is to point out where we see it happening.
As with most things, bad news travels faster and further than good. Consequently clients who adopt a blanket assessment position will turn their business into a very unattractive company for contractors to provide services to who could, as a result, decide against engaging with them completely.
Over and above that, clients who force contractors to accept an Inside IR35 determination (where the off payroll working rules apply) are very likely to see contractor rates increase as a result. Why would anyone willingly put themselves in a position to pay more to receive the same service?
A client adopting this approach will be in breach of the legislation, they’ll have closed the door firmly shut on some of the best available talent, and they’ll have changed the perception of the company to one that does not appreciate the flexible workforce - nor do they assess them fairly. They’ll also put themselves in a position where the cost to procure the service has increased. All in all, not a very sensible decision to take.
All of the above can be very easily avoided by taking reasonable care.
Benefits and examples of taking reasonable care
Post Brexit, mid Covid, the UK needs the flexible workforce more than ever. The flexible workforce will be needed to help shape the recovery. Customers looking to engage flexible workers can continue to do so very easily.
A client should ensure they have processes and procedures in place to make the determinations, they should ensure that the right training and guidance is available to the decision maker and a support mechanism available if required.
HMRC state the following as an example of taking reasonable care;
- having someone with a good understanding of the work to be undertaken involved in the determination process.
This point is very important, too many times we’ve seen or heard of clients where the person appointed to make the decision on the employment status of the workers is too far removed from receipt of the services. As a result, they don’t understand the contractual relationship and the working practices that make up the provision of services and are unable to make a fact based decision.
Therefore, one thing a client must do to ensure that they demonstrate reasonable care is make sure that the person making the determination is close enough to the delivery of the services. In most cases this would be the person on the client side who is utilizing the services.
Clients should ensure that they take reasonable care in their determination process, contractors should, where possible, inform their customers about this part of the legislation and if you need more help or guidance on this point please do not hesitate to contact us and we’ll be happy to assist.
If as a client you don’t want liability sitting with you, and want to continue to be able to engage the best available talent, this is very important.
Reasonable care is like the elephant in the room, it’ll cause problems for anyone in the flexible workforce supply chain if not spoken about. Let’s collectively discuss it and the decision making process around determinations - doing so will result in a positive outcome for everyone.
This document/article is for information purposes only, and should not be seen as providing legal or tax advice. SThree and its family of brands, advises clients and contractors to seek independent legal and/or tax advice, where required.