Reasonable Care: What End Clients Must Do When Assessing IR35

Reasonable care: what an end client must do when assessing IR35

When a medium or large private-sector business (or most public-sector bodies) engages a limited-company contractor, it is the end client's job to work out whether the off-payroll rules apply. HMRC calls this an employment-status determination, and it must be made "with reasonable care". That phrase does a lot of work, and it is worth understanding what it means in practice, because it shapes how clients write their Status Determination Statements (SDS) and how much weight those documents actually carry.

What "reasonable care" means

HMRC's Employment Status Manual sets out that a client must take reasonable care when deciding whether a worker would be an employee if engaged directly, and that reasonable care means acting as a prudent and reasonable person would in the client's position (ESM10014). In other words, it is not enough to guess, tick a box, or copy a decision from another contract without thinking about the specifics of this one.

HMRC's client-facing guidance reinforces this: the client must take reasonable care when making its determination, and must then tell the worker and the agency (or whichever party it contracts with) what that determination is, via an SDS (Off-payroll working for clients). The SDS itself is not proof of status. It is evidence provided by the client of the conclusion it reached, and it should be based on how the engagement actually works, not just on the contract wording in isolation.

The determination must reflect the real working arrangement

HMRC's flowchart for client organisations is explicit that the determination should be based on the contract and the actual working arrangements, and that the client must take reasonable care in reaching that conclusion (HMRC flowchart for client organisations, PDF). This matters because a contract can say all the right things about substitution rights and lack of control, but if the day-to-day reality does not match the paperwork, that mismatch is exactly what a review, an HMRC enquiry, or an employment tribunal will focus on.

This is also where the substitution and control tests come in. Case law such as PGMOL has kept the focus on whether there is a genuine, unfettered right of substitution and on the degree of control the client exercises over how, when and where the work is done, rather than on abstract questions about mutuality of obligation. A client taking reasonable care needs to look honestly at these factors as they operate in practice, not just as they are drafted.

Blanket assessments do not meet the bar

One of the clearest statements in HMRC's internal guidance is that blanket determinations, treating every contractor on a project, role, or grade as inside or outside IR35 without looking at each engagement individually, are given as an example of conduct that falls short of reasonable care (ESM10014). A blanket assessment might be administratively convenient, but HMRC's position is that it is not a substitute for a case-by-case review. Contractors who receive an SDS that reads like a template applied across an entire department may reasonably want to understand how their own specific arrangement was actually assessed.

What happens if reasonable care isn't taken

The consequences of getting this wrong sit with the client, not the contractor. HMRC's internal manual states that where a client fails to take reasonable care, responsibility for deducting tax and National Insurance contributions, accounting for the apprenticeship levy, and paying these to HMRC can rest with the client itself (ESM10015). HMRC's Compliance Handbook separately defines "careless" simply as a failure to take reasonable care (CH81120), which is the standard HMRC applies when considering penalties for inaccuracies.

Representations and disagreements

The off-payroll rules also give contractors and agencies a route to challenge a determination they disagree with. HMRC's guidance describes the SDS process, and its internal manual sets a timescale for the client's response: representations must be dealt with within 45 calendar days of receipt (Off-payroll working for clients; ESM10015). If a client fails to respond in that window, or continues to rely on an SDS, the original determination can remain in place until it is formally revisited, so it is worth contractors keeping a written record of anything they submit.

What this means for contractors reviewing an SDS

If a client states that a role is outside IR35, that is the client's determination, reached (in principle) through a reasonable-care process looking at the real contract and working practices. It is not a status the platform, or anyone other than the client via its SDS, can verify. Equally, a CEST result referenced in a determination is not determinative on its own; HMRC has been clear that CEST outputs are one input, not the final word. Contractors weighing up a listing that claims outside-IR35 status should look for signs of a genuine, individual assessment (rather than a blanket one), read the SDS carefully, and consider getting an independent contract review. You can browse current outside-IR35 contracts or check day-rate benchmarks for similar roles to help put a listing in context.

This platform does not determine, verify, or warrant IR35 status; the SDS is the client's legal responsibility. Contractors should take their own advice and consider IR35 insurance.