‘Off-payroll working’ essentially means situations where a worker provides their services in a manner outside of the payroll. Where previously the onus was on the intermediary to determine if these rules applied, under the new rules, the obligation shifts to the end user, which can place them in a very difficult position, as they need to be aware of any potential issues right through the supply chain.
The rules consider engagements where an individual provides their services through an intermediary (typically a Personal Service Company) to an ‘end user’. When considering the engagement between the worker and the end user, HMRC will look at whether that relationship would be one of employment if the intermediary was not in place. The legislation seeks to negate any tax advantages obtained by the individual operating via an intermediary and ensure that they pay broadly the same tax and National Insurance Contributions (NIC) that would fall due for standard employees.
This is a substantial change, involving complex rules, which has perhaps been overshadowed by the pandemic. It may, however, greatly impact the companies caught, with increased costs, practical difficulties, and potential exposure to significant penalties.
HMRC initially advised that they would operate a ‘light touch’ approach in the private sector with penalties waived during the first 12-months in respect of ‘accidental’ inaccuracies, but they could still be imposed in situations involving ‘failure to take reasonable care’ or ‘deliberate’ inaccuracies. Irrespective of this, any underpaid tax will still need to be paid.
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This can be seen in the public sector where the changes in the rules took effect from April 2017. In recent months several substantial tax bills and penalties have been issued, with a £12.5 million tax bill imposed on the Home Office, a £33.5 million tax bill (including an additional penalty of £4 million) imposed on HM Courts and Tribunal Services, and the Department for Work and Pensions also faced a massive £87.9 million tax bill in respect of various related failings.
Based on what we have seen over recent months; it would most certainly be an understatement to say that the implications of ignoring the changes or failing to have adequate procedures in place could have a significant impact on many companies in the private sector. It is, therefore, vital that companies affected by these rules are fully aware and ensure that they have appropriate processes in place to identify and monitor workers, assess each workers’ employment status, provide the worker with a status determination statement, ensure appropriate income tax and NIC is withheld via the payroll, and maintain all relevant records covering the full process, assessments, and decisions.