PAYROLL INSIGHT
Off-payroll working rules
SamanthaMannMAATMCIPPDip, CIPP senior policy and research officer, outlines the changes
L egislation came into force in April 2000 that sought to collect pay as you earn (PAYE) income tax and class 1 National Insurance contributions (NICs) from fees paid to individuals who were providing personal services to a client but working through an intermediary. An intermediary can take different forms – for example, a partnership, an individual or a managed service company – but the most popular choice is a personal service company (PSC) which has a separate legal identity to the individual. Instead of payments going directly from the client to the worker, they are instead paid to the PSC – or other intermediary. From 6 April 2000, an obligation was placed on the PSC to decide whether the contract between the individual and the client would have been one of employment had the intermediary not existed and, if so, calculate an amount of PAYE income tax and class 1 NICs on the payment, as if the payment had been salary. Referred to as ‘IR35’ – which was the press release reference at the time – it is safe to say it has not been a popular, Revenue & Customs (HMRC) that there was widespread non-compliance, and subsequent to consultation, off-payroll working rules were introduced for the public sector. These rules transferred the responsibility for assessing and determining whether the contract would – but for the intermediary – be one of nor widely understood policy. On the back of claims by HM
employment, to the public sector engager i.e. the client. If the client also happened to be the direct fee-payer, it became responsible for calculating PAYE income tax together with class 1 NICs (primary and secondary). Where the fee-payer was separate from the engager (i.e. an agency) the client became responsible for ensuring that the status determination made was provided to the fee-payer. HMRC received much criticism for the short notice given to enable the public sector to prepare for off-payroll working rules. ...HMRC received much criticism for the short notice given to enable the public sector to prepare... It was announced in Budget 2018 that, as expected, off-payroll working would be extended to the private sector from April 2020. Key features from this announcement include: l small engagers would be excluded l the status tool CEST (see below) was to be reviewed l further consultation would be carried out l guidance would be improved, and l the ‘private sector’ could be defined as any sector not previously captured by the
public sector reforms of 2017. The off-payroll reforms are not intended to impact the genuinely self-employed. CEST Following recommendations made by the Office of Tax Simplification and in support of the off-payroll working rules being delivered to the public sector, a new online service was designed to replace the former employment status indicator (ESI) tool to support the client, the fee- payer and the worker in making a status determination for the purpose of tax (as opposed to employment rights). Unlike the ESI tool, the check employment status for tax (CEST) service provides a print-out of the outcome. HMRC has stated it will stand by the result given unless a compliance check finds the information provided is inaccurate. The CEST service continues to receive much criticism and has been ruled against in a small number of first-tier tax tribunal cases. Before using CEST, HMRC makes clear that you will need to know: the worker’s responsibilities; who decides what work needs doing; who decides when, where and how the work’s done; how the worker will be paid; whether the engagement includes any benefits or reimbursement for expense. Reforms In response to the outcomes of an initial consultation in 2018 a further consultation
| Professional in Payroll, Pensions and Reward | September 2019 | Issue 53 24
Made with FlippingBook - Online magazine maker