Off-payroll working – are you ready for changes in April?

Changes to off-payroll working rules are coming into effect in the private sector in April 2021. The changes were originally due to come into effect in April 2020 but were delayed for a year in response to the Coronavirus pandemic.

Broadly, the new off-payroll working regime applies where an individual (the worker) provides their services through an intermediary, such as a personal service company (PSC), to a medium or large business (the client). The regime applies to payments made on or after 6 April 2021 for services supplied on after that date.

The regime does not apply to small companies. A company is small if it satisfies two or more of the following criteria:

Its annual turnover is not more than £10.2 million.
Its balance sheet total is not more than £5.1 million.
It has not more than 50 employees.

Off-payroll working changes

In circumstances where the new regime applies, the client will be required to review contracts made through the PSC for the supply of the worker’s services and the working arrangements. The client must determine whether, if the arrangements had been made directly between the client and the worker, the worker would have been an employee of the client for income tax or NIC purposes. This is known as status determination. The client must take reasonable care in making its status determination.

The client must then issue a status determination statement, setting out the client’s status determination and the reasons for reaching that determination. This must be given to the worker and the entity with which the client contracts. If the client fails to do so, it will be treated as the deemed employer.

For existing contracts, the status determination statement must be issued before the first payment under the contract on or after 6 April 2021. For new contracts, status should be determined before services are performed under the contract.

A worker or deemed employer may make representations to the client that the client’s status determination is incorrect. The client must respond within 45 days of receiving the representations, either confirming its original decision and giving reasons; or reversing its original decision.

If there is deemed employment, responsibility for deducting tax and national insurance contributions (and accounting for these to HMRC) lies with the deemed employer, who is generally the fee-payer. The fee-payer is usually the organisation paying the PSC for the worker’s services. If the client contracts directly with the PSC, the client will be the fee-payer.

Comment

Employers that use the services of individuals through intermediaries should assess whether the new regime will apply to them and, if so, ensure that an appropriate system is put in place. Issues to consider include:

who will have responsibility for carrying out the status determination;
how information about the contract and the way it is carried out in practice will be gathered;
possible use of HMRC’s CEST tool;
possible strategies if the outcome of the determination is that there is deemed employment;
methods of recording the outcome of the status determination and communication of the status determination statement;
establishing a dispute resolution procedure;
ensuring that the accounts and payroll departments know which workers have deemed employment; and
the procedure for monitoring and reviewing the system.

The new regime means that responsibility for assessing whether the rules apply shift from the PSC to the client. If the rules apply, it is the organisation paying the PSC (which may be the client) that is responsible for accounting for employment tax and NIC.

HMRC issued a briefing in February 2021 setting out its compliance principles. In that briefing, HMRC confirms that it will not enforce penalties for inaccuracies in the first 12 months relating to the off-payroll working rules unless there is evidence of deliberate non-compliance.

It is important to remember, however, that determination of the status of an individual for tax purposes and determination of the status of an individual for employment law purposes are separate issues. If an individual is a deemed employee for tax purposes, this will not automatically mean that the individual has employee rights.

Further information about the detail of the changes can be found here

09 March 2021

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