COMPLIANCE
which employ temporary workers or contractors whose services they contract out to client organisations for a fee). As there are rogue operators which set up non-compliant umbrella companies, action should be taken to apply the necessary crackdowns on these ● the external research commissioned by HMRC into the implementation and impact of the extension of the off payroll rules in the private sector should be accelerated and made more comprehensive. Its findings should be published in full ● the government must take a more coherent approach to the issue of employment status, which considers both tax and employment rights. It’s unfair that individuals are treated as employees for tax purposes but without the rights normally associated with employment. To address this, the government should proceed with implementing the proposals that were set out in the ‘Taylor Review of Modern Working Practices’. The various reports highlight many of the difficulties that public bodies and others have encountered in ensuring the rules can be applied in a compliant way, as well as other consequences arising from the OPW rules. It’s hoped the government will take heed of these comments and necessary improvements can be made. The various reports highlight many of the difficulties that public bodies OPW compliance – new HMRC team Another interesting development is that HMRC has set up a new specialist OPW compliance team focused on ‘chapter 10’ compliance i.e., this team only deals with OPW compliance and the specific requirements of the 2017 and 2021 legislative changes. There’s another HMRC team, ‘employment status and intermediaries and others have encountered in ensuring the rules can be applied in a compliant way
(ESI)’, which deals with employment status (i.e., not involving intermediaries), ‘chapter 8’, traditional IR35 / OPW, plus the agency and managed service company legislation. For public bodies, this effectively means the new OPW team will deal with cases involving the engagement of personal service companies and other intermediaries, while the ESI team will focus on the engagement of individuals. Of course, many public bodies engage with both categories so it will be interesting to see how compliance is managed by HMRC as a result. HMRC’s OPW team has a group of educators who’ve advised they’re there to help, and have confirmed the following expectations regarding OPW from its customers: ● keep OPW compliance high on their agendas – the team recommends reviewing processes, but HMRC understands the frequency will be relative to the level of OPW usage ● where the deemed employer isn’t the client e.g., there are several intermediaries involved or an agency, don’t assume the deemed employer is doing everything right. HMRC highly recommends the public body satisfies itself that the other party or parties is /are complying with the rules ● keep records of those working for them, even where it’s an outside OPW determination. Most public bodies are required to know who has worked as part of, or for, their business, so this shouldn’t be an extra administrative burden ● approach HMRC if mistakes occur. Case law developments As can be expected, there’s generally a regular flow of case law decisions from the courts and tribunals regarding employment status and OPW. One common theme apparent from recent decisions is an emphasis on the potential importance of mutuality of obligation (MOO), i.e., the obligation on the part of an engager to offer work and the obligation of the worker to accept it. We’re aware that HMRC refutes the significance of MOO in determining employment status as it argues it’s present in any contract (regardless of whether it’s a contract of employment or self- employment), from once it’s agreed until when it’s terminated. However, the courts and tribunals have determined that it is, in fact, a relevant
factor in determining status. One example is the case involving football referees engaged by PGMOL to officiate at English football league games, where the tribunal commented that the ability of a referee to pull out of a game right up to the day of that game was a relevant consideration. While the position is far from clear – because some of the relevant legal cases are subject to appeal – end clients will struggle to fully understand this test and apply it in practice. This is mainly because the CEST tool has no specific questions which properly deal with the presence, or otherwise, of MOO. Getting it wrong As was suggested in the NAO report – and mentioned to us by HMRC – there’s no mechanism to offset any liability arising because of applying the OPW rules incorrectly. As things currently stand, HMRC can recover tax / NIC from the end client with no statutory offset for tax already paid by the intermediary. This could be seen as a ‘win-win’ for the workers (engaged via an intermediary), incorrectly treated as outside the scope of the OPW rules, as they could receive a refund from HMRC. The end client subsequently picks up their tax / NIC bill (plus employer’s NICs and the apprenticeship levy), as well as penalties and interest. End clients using off payroll labour are urged to take this matter seriously and ensure there are robust procedures in place to minimise any risks Summary These recent developments demonstrate the difficulties faced by end clients in the public sector in understanding and applying the rules. While it’s hoped that improvements can be made by government / HMRC to reduce the burden, end clients using off payroll labour are urged to take this matter seriously and ensure there are robust procedures in place to minimise any risks. n
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| Professional in Payroll, Pensions and Reward |
Issue 83 | September 2022
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