PAYROLL INSIGHT
Office holders in the public sector
John Harling, employment taxes specialist at PSTAX, discusses HMRC’s recent challenging activity W e are aware of a number of cases recently where HM Revenue & Customs (HMRC) the principle that this does not necessarily have to exist in perpetuity, but nevertheless an office is likely to exist if it has a tenure beyond one person. its attention to other groups where the position is perhaps less clear-cut. This includes independent social workers, deprivation of liberty safeguarding
is challenging local authorities and other public bodies regarding the employment status of certain categories of worker considered to be ‘office holders’. Public bodies are well-used to the requirement to fully consider employment status when engaging individuals on a self-employed basis and to ensure that they meet the necessary criteria to be considered as truly self-employed. This is done by reviewing the so-called ‘tests’ of employment status – derived from case law – including the right of personal service, the level of control exercised by the engager and whether the person is in business on their own account. However, there is also a class of worker which falls into a specific category, known as an ‘office holder. Though such workers will often not meet the definition of an employee based on these tests, they must nevertheless be treated in the same way as an employee for tax and national insurance contributions (NICs) purposes. Accordingly, they must be paid under deduction of pay as you earn (PAYE) and NICs via the payroll. Rather unhelpfully there is no statutory definition of ‘office holder’, so again we have to refer to case law to understand how HMRC interprets this. Essentially, an office is a regarded as a position that, according to HMRC, is created by “a charter, statute, or other document which is, or forms part of, the constitution of an organisation or which governs its operation.” In other words, an ‘office’ is created if it has an existence that is independent of the person who holds it, i.e. there is a specific legal or similar requirement (or established custom) that the position must be filled should the current incumbent no longer hold the role. Case law has established
assessors and, in the case of police forces, legally qualified chairs who sit on police misconduct panels. This list is far from exhaustive and there are many other categories that could potentially fall within this definition. In these cases, the work undertaken appears to be more ad hoc because the individuals are called upon from time to time to deal with specific cases and, arguably in some cases, they lack the permanence of some of the roles that HMRC had challenged previously. Nevertheless, there is evidence of activity by HMRC in respect of these roles and local authorities and other public bodies should be prepared for a potential challenge where these positions are appointed. Each case must be assessed on its relative merits, but suffice to say there should always be a careful examination of the facts. Many office holders are engaged through intermediaries such as personal service companies, which has meant that the engaging bodies may not have the ultimate responsibility to account for PAYE/NICs at present. However, with the forthcoming changes to the rules regarding intermediaries engaged by public bodies, this is a matter that will have to be addressed when these rules come into force in April 2017 when public bodies will become responsible for making an appropriate withholding. We expect details of how this will work in practice to be confirmed later in the year. In the meantime, public bodies are advised to review payments made outside the payroll to those who may fall within the ‘office holder’ category to ensure compliance with HMRC requirements. n
Therefore, an elected member or returning officer would fall within the definition of office holder because they are specific posts created by statute. Conversely, a refuse collector employed by a local authority is not an office holder (although he or she is an employee) because, although there is a legal obligation to collect the rubbish, there is no distinct law that requires the appointment of the refuse collector. In local authorities HMRC undertook a ‘campaign’ a few years ago with regard to the engagement of office holders on ‘off payroll’ terms, which resulted in several councils being required to pay significant arrears of PAYE/NICs, interest and penalty charges in respect of school improvement partners, foster/adoption panel members and independent chairs of local safeguarding boards. In these cases, the local authorities were specifically required to appoint individuals to these roles on a permanent (or semi-permanent) basis and it was clear that, in the majority of cases, offices had been created under case law criteria. Following this campaign, it appeared that we had reached a position where it was understood what roles would fall into that definition and must be paid under deduction of PAYE/NICs. However, in recent times, HMRC has started to turn ...an office is likely to exist if it has a tenure beyond one person
| Professional in Payroll, Pensions and Reward | September 2016 | Issue 23 34
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