From April 2020, medium and large sized private sector businesses will become responsible for assessing the employment status of the off payroll workers they engage with. This announcement was no surprise following similar rules that were rolled out in the public sector in 2017.
The off payroll working rules only apply to people working like employees, but operating through a company (often known as a personal service company or ‘PSC’). Currently it is the PSC’s responsibility to determine whether the off payroll working rules apply when engaged by a private sector company. Where the individual is self-employed, it is always the responsibility of the engaging firm to determine employment status and operate PAYE as appropriate.
In the latest consultation, HMRC have suggested that the definition of a small company will follow the Companies Act definition. Two of the annual turnover (not more than £10.2 million), balance sheet total (not more than £5.1 million) and number of employees (not more than 50) tests must be met to qualify as small.
Although exempting smaller businesses from the rules is a welcome move, it will still be essential to determine who is responsible for assessing employment status in each engagement (i.e. the PSC or the engaging party).
Further, this gets more complicated where there are several agencies or intermediaries in the chain, with the end client required to assess status and communicate this down the chain so that the agency or intermediary making the payment can deduct PAYE/NIC as appropriate. The consultation also proposes that HMRC will have the power to pass any PAYE/NIC liability through the chain where they are unable to collect any unpaid taxes from the party which has failed to comply.
With less than 12 months until the rules are due to come in, we would recommend that businesses begin to prepare now and assess how they may be impacted. Some actions to consider taking may include:
- Identify any workers engaged through agencies or other intermediaries to establish if services are being provided through a PSC.
- Identify any existing contracts extending beyond April 2020 and determine if the off payroll rules will apply. Talk to those contractors potentially affected.
- Establish internal processes or seek professional advice to consider whether the rules apply to new engagements.
We can help you to understand your responsibilities and assess engagements to determine if the new rules will apply.