Off-payroll working: HMRC is ready; are you?
Off-payroll working - changes from 6 April 2020 for both public and private sector orgsanisations
HMRC is pushing ahead with its proposed changes to the ‘Off-payroll Working Rules’, which will take effect from 6 April 2020. All organisations, in both the public and private sectors, engaging workers via Personal Service Companies (PSCs), need to consider these new rules. Ian Gadie, Business Tax Manager, examines the implications.
HMRC published draft legislation about the Off-payroll Working Rules in July 2019, with the intention of including the new legislation in the Finance Bill 2019, which will be issued later this year. In August 2019, HMRC published new guidance for clients engaging off-payroll workers in anticipation of the new legislation.
The rules brought in from 2017/2018 continue to apply for public sector organisations and, in addition, they will also need to apply the new rules in relation to providing their off-payroll workers with details of their status determination and the disagreement procedures.
Private sector corporate entities
In the private sector, corporate entities (which include companies, limited liability partnerships, unregistered companies and overseas companies) are exempt from the legislation if they qualify as ‘small’ under Companies Act criteria, meeting two of the following three conditions:
- Annual turnover less than £10.2 million
- Balance sheet total of less than £5.1 million
- Less than 50 employees
As regards a group of companies, if the parent of a group is ‘medium’ or ‘large’, all subsidiaries have to apply the Off-payroll Working Rules. There are also rules applicable to connected and associated companies.
Corporate entities are regarded as ‘medium’ or ‘large’ once the conditions are met for two consecutive financial years, and the Off-payroll Working Rules will apply from the start of the next tax year.
Simplified test for unincorporated entities
A simplified turnover test applies to unincorporated private sector entities, with the threshold set at an annual turnover of £10.2 million. The Off-payroll Working Rules apply from the start of the tax year following the end of the calendar year the turnover threshold is breached.
Determining and communicating the worker’s status
Any affected organisation engaging a worker via a PSC is required to decide the worker’s status and communicate it to the worker and the ‘person’ contracted with for the engagement, agency or the PSC. It is anticipated that HMRC’s Check Employment Status for Tax (CEST) will be the primary method used by clients to determine a worker’s status.
The determination of the worker’s status must be undertaken with reasonable care and you must deal with any disagreements about the status determination within 45 days of notification from the worker.
PAYE and NIC liability
Any affected organisation engaging a worker via a PSC will be responsible for accounting to HMRC for PAYE and NIC due on all engagements where the status determination is that of employee, together with all other engagements where the client has not determined the status but was required to do so, or has not dealt with a status disagreement within the 45 day time limit.
What do I need to do?
All private sector entities, incorporated or unincorporated, that believe they will not qualify as ‘small’ as at 6 April 2020 need to review all engagements where they have contracted with PSCs, directly or indirectly via agencies.
All such engagements need to have a status (employee or self-employed) determination completed and this needs to be communicated to the worker and other required parties in the labour supply chain.
Where the status determination indicates that of employment, there will be a requirement to account for PAYE and NIC on the payments made to the PSC, or relevant agency in the labour supply chain, after 6 April 2020.
A system of notifying status determinations needs to be set up, together with a process to deal with any disagreements about employment status within the specified time scale of 45 days.
How can we help?
It now seems clear that HMRC is not going to delay applying the Off-payroll Working Rules for the private sector.
Organisations urgently need to establish if they will be required to apply the new rules from 6 April 2020, what engagements they have with workers via PSCs, and complete the status determinations to identify if PAYE and NIC liabilities will arise from 6 April 2020.
Advice and guidance is available from PKF Littlejohn, and if you have any concerns please get in touch with us. Please contact Ian Gadie on firstname.lastname@example.org or +44 (0)207 516 2256, or your usual contact at PKF Littlejohn, for further advice.