MY CIPP
The CIPP's Advisory Service team provides answers to popular questions
Q: Can an agency engage with a sole trader? A: Agencies should not be engaging sole traders. The legislation does not allow self- employment when an agency is involved in the contractual relationship between the supplier and client. For income tax purposes, where the conditions in section 44(1) of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) (https://bit. ly/2Qzdrva) apply, the worker is treated as holding an employment with the agency. The remuneration which the worker receives as result of entering into such arrangements with an agency is treated for income tax purposes as earnings from employment. In these circumstances, sections 688(1) and (1A) of ITEPA (https://bit.ly/3gGwcay) suggest that the agency is the employer who is responsible for operating PAYE (pay as you earn). HM Revenue & Customs (HMRC) could also pursue the agency for any unpaid income tax and National Insurance contributions (NICs). Q: We know that tax cannot be deducted above the regulatory limit which is 50% of gross pay, but does this apply to notional amounts that are included only for the purpose of increasing taxable pay for benefits in kind? A: From 6 April 2015, the regulatory limit which ensures employees have no more than 50% of their pay deducted as income tax under PAYE was extended to all tax codes. If the tax hits 50% of gross pay, the tax exceeding the limit is carried forward to the next pay period, as tax cannot exceed 50% of gross pay in a pay period. Effectively an employee will have both taxable pay and gross pay in their payslip. The payroll section should ensure that the notional benefits are not included in gross
pay as the regulatory limit applies to gross pay only. This is achieved when the notional benefit is created in the background of the payroll software. When setting up the ‘allowance code’, the user would ensure the allowance was subject to tax and class 1A NICs but not included in gross pay. An employer may need to contact their software provider to help with this. Q: We have an employee who during her statutory maternity leave (SML), which started on 9 March 2021, set up her own small business and became self-employed. Can she remain on SML and receive statutory maternity pay (SMP)? A: Once an employee becomes entitled to SMP she continues to be entitled even if she undertakes self-employment. Although classed as working in the maternity pay period, undertaking work in a self-employed nature during this period will not affect the employee’s SMP, and she would remain on SML. Q: We have four contractors working for us for whom we have used HMRC’s check employment status tool to establish their status. Two of them are self-employed for tax purposes and two are outside of the off-payroll working rules. For which contractors do we have to send a status determination statement (SDS)? A: If the end client or hiring organisation is not regarded as a small business under section 382 of the Companies Act 2006 (https://bit.ly/3exuw0B), they should communicate the result of the status determination test (SDS) by issuing the contractor with a copy. From 6 April 2021, the end client must inform the worker and the agency, or other organisation they contract with, the results
of the determination. End clients should forward the SDS to these parties regardless of whether their determination shows that the off-payroll working rules apply or not. They must also provide reasons for their determination. If the working practices of the engagement change and a new contract is negotiated with the worker, the end client will need to perform another assessment. The off-payroll working rules relate to the specific contract for services that a worker undertakes, so if at any time there is a change to that contract the end client should assess whether the rules apply. Q: We acquired two small companies in tax year 2020/21. Each has its own PAYE reference, and there is a total of 25 employees. Should each company be paying the apprenticeship levy? A: If an individual employer becomes connected to another company mid-way through the tax year, then by virtue of the connectivity rules both continue to have the levy allowance which they had at the start of the tax year for the remainder of that year. At the start of the new tax year, the companies will be classed as fully connected and they will have to determine how the levy allowance will be allocated between them. For reference, see section 3 of the National Insurance Contributions Act 2014 where it discusses the connected persons legislation (https://bit.ly/3tmP5TI). Q: Can you please advise whether there is an obligation for an employer to pay extra if an employee works a shift when the clocks have gone back? Also, can we pay an employee less when the clocks go forward? A: If the employee has worked an extra
| Professional in Payroll, Pensions and Reward | June 2021 | Issue 71 6
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