Off-payroll working: HMRC is ready; are you?

HMRC remains on track to roll out the Off-payroll Working Rules to the private sector from 6 April 2020. But what does this mean for your business?  Ian Gadie, Business Tax Manager, examines the implications.

HMRC recently published its final proposals, draft legislation and a summary of the responses to the consultation document on extending the Off-payroll Working Rules to the private sector.  The key points are as follows:

  • Companies qualifying as ‘small’ under the Companies Act 2006 definition will be exempt from the new rules. Growing companies will cease to be exempt after they have ceased to be ‘small’ for two consecutive years; conversely, a shrinking company will not be exempt until it has been ‘small’ for two consecutive years.
  • Unincorporated organisations with annual turnover of less than £10.2m will also be exempt from the new rules. This test will be based on calendar year turnover and will be effective from the start of the tax year (6 April) following the end of the respective calendar year. Unlike incorporated entities, the two-year rule will not apply to unincorporated entities.
  • Engagers of workers (clients) via Personal Service Companies will be required to communicate the status decision of the engagement (anticipated to be HMRC’s Check Employment Status for Tax (CEST)) to the worker and agencies in the labour supply chain.
  • The legislation will include the minimum requirements for a ‘status disagreement process’ between the engager (client) and the worker, where the off-payroll worker disagrees with the status determination.
  • In situations where there are one or more agencies in the labour supply chain between the client and the worker, liability for unpaid tax and NIC can still fall on the client - even though the failure was by another party in the supply chain. HMRC will provide guidance to organisations on the steps they can take to ensure due diligence on their internal processes concerning such engagements, and the situations in which they will not seek to penalise clients who through no fault of their own are potentially liable for underpayment of PAYE and NIC.
  • Between now and April 2020, HMRC will be working on enhancing the CEST tool to ensure it is effective for organisations affected by the off-payroll working reform. In addition, HMRC’s compliance teams will provide extensive support and guidance to organisations affected by the new rules, including general and targeted education packages, webinars, workshops and one to one sessions for business in particular sectors.

Businesses and organisations affected by the new Off-payroll Working Rules should urgently review all engagements with workers via Personal Service Companies, and determine if liability for PAYE and NIC will apply to them from 6 April 2020. In situations where there are one or more agencies in the labour supply chain, businesses should ensure they understand which party is responsible for accounting for PAYE and NIC and that compliance with the new rules is followed.

It’s clear that HMRC is not considering any delay to the implementation of the new rules, and businesses need to make sure they are ready by 6 April 2020.

 

Please contact Ian Gadie on igadie@pkf-littlejohn.com or +44 (0)207 516 2256, or your usual contact at PKF Littlejohn, for further advice