The client must take reasonable care when determining whether the worker would have been an employee if they were engaged directly. If the client fails to take reasonable care, the responsibility for the deduction of tax, NICs and apprenticeship levy and paying these to HMRC will rest with them. That liability will always remain with the client unless it takes reasonable care in reaching its conclusion set out in the SDS. Reasonable care means clients should act in a way that would be expected of a prudent and reasonable person in the client’s position. HMRC recognises that the circumstances of clients completing a SDS will vary greatly.
While each client has a responsibility to take reasonable care, what is necessary for each client to discharge that responsibility must be viewed in the light of their abilities, experience and circumstances. For example, we would expect a higher degree of care to be taken by a large multi-national company with its own internal finance function than of a much smaller entity.
HMRC expects each client to make a correct and complete determination, and preserve sufficient records to show how the decision was reached. Standard document retention rules apply to the SDS. A client with a small, straightforward workforce may only need a simple regime, provided they follow it accurately. Whereas a client with a larger and more diverse workforce may need to put in place more sophisticated systems.
In HMRC’s view, it is reasonable to expect a person with limited abilities, or who encounters a situation of which they have limited experience, to take care to find out about the correct tax treatment or to seek appropriate advice.
Examples of behaviours that would indicate a client has taken reasonable care include, but are not limited to:
Examples of behaviours which do not constitute reasonable care include, but are not limited to:
It is acceptable for a client to make a determination for a group of workers, providing those workers are engaged under the same contractual terms and conditions, and in practice work under the same terms and conditions. However, if determinations are made for groups of workers where the terms and conditions are not the same, this would not be taking reasonable care. If the client has not taken reasonable care then responsibility for the deduction of tax, NICs and apprenticeship levy and paying these to HMRC is the client’s. This is the case even if another party has already made deductions in line with the original determination.
If a client is not already the deemed employer, and has taken reasonable care and fulfilled its other duties (such as issuing the SDS), the responsibility for deducting tax and NICs and paying these to HMRC will not rest with it. This is the case even if it turns out that the client got the decision wrong.
A large, non-public sector company recognises the need to begin preparations for the introduction of the off-payroll working rules. They provide comprehensive training around the employment status and off-payroll working rules to a group of directly impacted colleagues, including introducing processes requiring all existing contracts with workers who provide their services through intermediaries to be reviewed to determine whether the new rules apply. They make it a mandatory requirement that CEST be used (accurately and in line with HMRC guidance) to make determinations and periodically review its determination process to ensure it is robust.
As the company has taken prudent and reasonable steps when determining whether the off-payroll working rules apply, they would be considered to have taken reasonable care.
A large, non-public sector company needs to make a SDS in relation to the off-payroll working rules. They ensure that those making the SDS have a good understanding of the working arrangements to which the SDS relates. They also ensure that HMRC guidance on employment status is applied and CEST is used in accordance with guidance and answered accurately based on the information they have.
The business has staff in similar roles but where the terms and working practices do differ. The business ensures that the determination for this role is based on its own facts and do not determine the outcome based on the other roles.
As the company has taken prudent and reasonable steps when determining whether the off-payroll working rules apply, they would be considered to have taken reasonable care.
A medium, non-public sector, company engages an agency to supply workers. The workers supplied by the agency operate through their own PSCs. The client decides not to take any steps to prepare for the introduction of the off-payroll working rules. They elect to simply determine that all workers who provide their services through a PSC will be caught by the new rules, because they undertake similar roles and are engaged under similar terms and conditions. They do this, believing that this will protect them from any liability to pay tax and NICs on payments to those workers. The client passes the same SDS to every worker and the agency.
Even though the client has determined that the off-payroll working rules apply to the engagement, and passed on the SDS to the worker and agency, as the company has not taken prudent and reasonable steps when making their determinations, liability rests with it. The client has not considered the status of the workers contracting under different terms and conditions, so they have not satisfied the condition to take reasonable care. The responsibility for the deduction of tax, NICs and apprenticeship levy, and paying these to HMRC, rests with the client.
