Contracting for a client who’s still banning limited company, off-payroll workers: 3)Blanketing
It may only be one clause. And a clause that’s absolutely buried in regulations -- and in regulations, note, which haven’t even passed into law yet!
But most off-payroll workers are still nonetheless very familiar with the ‘reasonable care’ provision in the revised IR35 framework, scheduled to be introduced on April 6th 2021, writes Carla Roberts, director of legal services at WTT Legal.
Sleeves and blankets
The problem is, at our bank we’re scrutinising for this series exclusive to ContractorUK, contractors don’t think that its line managers, HR officers or even its top brass, are familiar with ‘reasonable care’ at all. Or if they are, the strong suspicion is that they’re flouting it.
As our source puts it: “Due to the ‘Reasonable Care’ clause, this financial services organisation like all others in the private sector affected by the incoming IR35 rules, should be assessing PSCs’ employment status for tax purposes fairly. But it’s not.”
The aggrieved adds: “What legal argument could the bank possibly have up its sleeve to feign ‘reasonable care,’ even though, in practice, it’s absolutely banned most PSCs in one foul swoop? Is there a legal expert that can interpret the proposed legislation to let the bank get around the ‘RC’ clause? For what it’s worth, the bank denies blanketing, despite blanketing.”
The legal position
Well, under the draft Off Payroll Working Legislation, Chapter 10, ITEPA 2003 (from April 2021), it states that 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 will sit with them instead of the ‘fee-payer.’
The draft legislation states that ‘RC’ (as our source terms it) means that “clients should act in a way that would be expected of a prudent and reasonable person in the client’s position”.
This means that ‘reasonable care’ will depend on their experience, abilities and circumstances. So, for example, a higher standard would be expected of a large multi-national company with its own compliance team. A company with less resources would be expected to take appropriate advice, however.
Reasonable care: what it looks like
The draft legislation further states that each client is expected to make a correct and complete determination and to preserve sufficient records to demonstrate how that decision was taken. Examples of behaviours which would indicate ‘reasonable care’ have been provided in the draft legislation which include:
- Accurately applying and keeping a record of the employment status principles.
- Accurately completing HMRC’s CEST tool. (N.B. Recent case law has again flagged up that this tool is flawed due to its failure to include Mutuality of Obligation).
- Applying HMRC guidance on determining status.
- Seeking the advice of a qualified, professional adviser.
- Having someone with a good understanding of the work to be undertaken involved in the determination process.
- Checking existing individual determinations to ensure they remain valid / accurate.
- Reviewing the processes being applied and amending for future determinations where necessary.
- If there are any material changes to a worker’s terms and conditions, or working practices, making a new status determination.
- Ensuring they check and review processes of other parties where they subcontract the determination process to another party. The client remains responsible for the accuracy of the SDS even if it subcontracts that responsibility to another party.
‘Reasonable care’ is not…
Examples of behaviours which do not constitute reasonable care include, but are not limited to:
- 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.
- Determining that the off-payroll working rules apply to a large group of workers who have some variations between the work that is being carried out, without giving proper consideration to the different working arrangements for each worker.
- Failing to reconsider determinations where there has been a material change in circumstances.
- An absence of any proper support or training within the organisation to enable those individuals responsible for making determinations to properly consider the off-payroll working rules.
- Inputting inaccurate information into CEST.
- Failing to take into account all relevant evidence.
- The person tasked with completing the SDS does not possess the knowledge required to complete it and is not provided with the required level of support.
- The client subcontracts the Status Determination Statement process to another party and does not confirm the accuracy of that conclusion and the reasons for it.
Where ‘blanketing’ is ok, according to HMRC
Potentially relevant to our bank however, contractors should be aware that the draft legislation does state that 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.
What is significant is that if determinations are made for groups of workers where the terms and conditions are not the same, this would not be taking reasonable care.
Finally, the draft legislation gives the following example of a client not taking 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.”
Our interpretation of the draft legislation with respect to ‘reasonable care’ is therefore as follows:
Clients who make blanket decisions are taking a very risky approach. If there is even a minor difference between the terms and conditions or working practices of workers under that blanket decision, the reasonable care test will not be met.
Risk (cont.), and recourse for contractors
Furthermore, and perhaps even more importantly, the draft legislation includes in the definition of terms and conditions, the working practices. In our view, it is unlikely that all workers will, in practice, have identical terms and conditions. We would therefore conclude that in the vast majority of cases, making blanket assessments will not meet the reasonable care test.
As to what contractors at the bank should do, if they too suspect reasonable care has not been taken, the options are few and far between. First, contractors might gently remind the bank of the provisions outlined in the draft legislation and request a review. Where a contractor feels certain that reasonable care has been ignored, then they could seek to overturn the bank’s decision utilising the appeals process. However, although this may be successful it may prove equally counterproductive.
The alternative to challenging, of course, is to seek an assignment elsewhere. In truth, a client cannot be forced to take on contractors, so in such circumstances contractors’ options are limited. Having said that, clients who blanket assess will lose the best talent and will end up paying for their one-size fits all approach further down the line.