IR35 Off-Payroll Rules – SDSs and Reasonable Care

What are the Off-Payroll Rules?

Coming into force from April 2021, the new rules are designed to ensure that contractors who use personal service companies (PSCs), but who work like employees, pay similar levels of tax and NICs as employees. For contractors and businesses who engage with contractors, the Off-Payroll Rules are likely to have significant implications and will need to be prepared for in good time.

Under the new rules, medium and large businesses who engage with PSC contractors (End Clients) will be responsible for determining the employment status of each individual and for making deductions for tax and NICs accordingly.

End Clients must confirm each contractor’s status by providing them and their PSC with a Status Determination Statement (SDS). An SDS needs to be made in writing, provide reasons for the decision and be carried out using ‘Reasonable Care’. If Reasonable Care isn’t used during their decision-making process, the responsibility for deducting tax and NICs will remain with the End Client.

So, what is ‘Reasonable Care’?

HMRC have recently published guidance which contains examples of behaviours that would indicate Reasonable Care has been taken, which includes:

  • accurately applying and keeping a record of the employment status principles
  • accurately completing HMRC’s Check Employment Status for Tax (CEST) tool
  • applying HMRC guidance on determining status
  • seeking the advice of a qualified, professional advisor such as a specialist employment solicitor
  • 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
  • checking and reviewing processes of other parties where it subcontracts 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.

HMRC’s guidance also provides examples of behaviours which would not constitute Reasonable Care. These are:

  • determining that every worker who provides their services through an intermediary is caught by the Off-Payroll Rules without giving any consideration to the specific facts of each individual case
  • determining that the Off-Payroll 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 individual
  • 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 accurately consider the Off-Payroll Rules
  • inputting inaccurate information into CEST
  • failing to take account of 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 SDS process to another party and does not confirm the accuracy of that conclusion and the reasons for it.

What is CEST?

The Check Employment Status for Tax (CEST) is an online questionnaire designed by HMRC to help End Users determine the IR35 status of an individual.

How accurate is the CEST tool?

The CEST tool may provide an accurate determination in clear cut scenarios, however, it has been criticised for being too simplistic and incapable of considering the finer nuances which could shift a determination one way or the other.

CEST relies heavily on whether a contractor has a right to substitution, and some argue, fails to adequately consider mutuality of obligation. These are both key indicators of status and an accurate assessment should consider the reality of a relationship as a whole, giving the appropriate weight to each of the factors of employment status.

Will HMRC stand by CEST assessments?

Not always. A string of recent cases has demonstrated that HMRC may dispute determinations made by the CEST tool. As a result, some End Clients are instead choosing to rely on their own methods for assessing IR35 status. These may include carrying out manual assessments of each contractor’s employment status through internal reviews or seeking the advice of an employment law specialist to review and advise on their off-payroll contractors. To demonstrate that Reasonable Care has been taken, End Clients may require training and guidance from an employment specialist on how to complete an SDS and accurately assess a contractor’s employment status.

What should End Clients be doing now?

End Clients should be auditing and reviewing existing contractor relationships and considering what steps should be taken to accurately complete a Status Determination Statement. It would be sensible to assign a team or individual to learn about the new rules and take responsibility for planning for the implementation of the new rules. Where an End Client has previously made a determination, this should be revisited prior to April 2021 to ensure it remains valid and accurate.

Engaging an employment law specialist can help simplify this process and demonstrate that those carrying out SDSs are doing so with ‘Reasonable Care’. We are assisting a number of clients with this and are always available to help by providing services such as contractual reviews, drafting IR35 friendly consultancy agreements and training on how to accurately complete an SDS.

If you would like to know more about the services we offer in relation to IR35 and the Off-Payroll Rules, please call our Employment Team on 0118 977 4045 or email us at

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter. 


Tom Hyatt
Solicitor, Employment
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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