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Understanding end-client requirements under IR35

How to determine the 'reasonable-care' obligation.


In recent months, we've received numerous inquiries about the end-client obligations under IR35 Chapter 10, particularly regarding the “reasonable care” requirement. This article will explain what "reasonable care" means in this context, its importance, and how it can affect liability.

What is “reasonable care” under IR35?


If you have clients that are medium or large businesses engaging with Personal Service Company (PSC) contractors, directly or indirectly, you will be well-versed with the need to issue a Status Determination Statement (SDS). This statement confirms whether an engagement falls inside or outside IR35 and should also provide the specific reasoning behind that decision.

A crucial aspect of this process is the “reasonable care” requirement. If HMRC can demonstrate that the end-client has not taken reasonable care, the potential tax liability may shift to the end-client organisation.

Legal framework for “reasonable care”


According to Chapter 10 legislation:

"A statement is not a Status Determination Statement if the client fails to take reasonable care in reaching the conclusion mentioned in it."

However, the law itself does not define what "reasonable care" entails, which raises the question: how is it measured?

How to determine “reasonable care”


The key lies in the wording of the legislation: "reasonable care in coming to the conclusion" about whether IR35 applies. Case law on employment status and IR35 can help guide us.

Decades of case law heard in various Tribunals and Courts, from Ready Mixed Concrete to Lime IT and recent presenter IR35 cases, establish a method for determining employment status. These cases highlight that in order to reach a conclusion, you must first establish all relevant facts and apply the appropriate legal framework.

The role of written contracts and working practices


Case law shows that written contracts are the starting point for establishing the facts of any engagement. However, it’s equally important to review the actual working practices to ensure the contracts reflect the true nature of the engagement.

Once you have a clear understanding of the facts, you can then apply case law principles—such as personal service, mutuality of obligations, and control—to determine whether IR35 applies.

Reliance on online tools: A word of Caution


Since the introduction of the IR35 legislation, several online platforms have been developed to help end-clients assess whether their engagements fall inside or outside IR35. However, caution is necessary when relying on these tools.

Many online tools, including HMRC’s Check Employment Status for Tax (CEST), focus primarily on working practices. While useful, these tools do not always take into account the written contracts, which are a key component of determining IR35 status.

This is why Markel’s own online assessment platform is underpinned by our comprehensive consultancy services, utilising our knowledge of and practical experience of defending taxpayer against enquiry – our approach to IR35 has been tested at the Tribunals (successfully!).

The end-client’s responsibility


Under IR35 Chapter 10, the responsibility for determining the employment status rests with the end-client. While an accountant, tax advisor, or online platform can assist, ultimately responsibility cannot be delegated to another party.

End-clients must perform due diligence to ensure the advisors or tools they use are capable of providing a thorough and accurate review. If either contracts or working practices are ignored, the determination may not meet the legal requirements, putting the end-client at risk.

Tax defence insurance and IR35: Be aware of the limitations


Many end-clients and fee-payers have sought IR35 Chapter 10 insurance to protect themselves from potential IR35 challenges by HMRC. However, these policies often come with specific conditions.

For instance, if an SDS is issued without reviewing both contracts and working practices, the insurance policy may not pay out. Some policies also require that a full review be conducted before the issuance of the SDS, not retroactively at the time of a claim. If a review of the working practices contradicts the terms of the contract, the policy may not offer protection.

Preparing for increased HMRC activity


With HMRC intensifying its focus on IR35 compliance, it is essential for accountants and their clients to be fully prepared. Ensure that both contracts and working practices are carefully reviewed in accordance with the law before an SDS is issued. The last thing you want is to face an HMRC investigation without proper protections in place.


If you have a query on the above or need any assistance, please email IR35@Markel.com.