PAYROLL INSIGHT
Workers’ services provided to public sector through intermediaries
In April, Professional in Payroll, Pensions and Reward invited several industry luminaries to participate in a virtual roundtable on the highly topical issue of the off-payroll working changes that came into effect from 6 April 2017. These changes, which have retrospective effect by virtue of provisions in Finance Act 2017, require employers in the public sector to place on their payroll many individuals who previously had been treated as outwith liability to PAYE (pay as you earn) and Class 1 National Insurance contributions (NICs). This is the concluding part of the roundtable.
Participants Karen Beckett BA (Hons) FCIPP, head of payroll and benefits, Dorset Healthcare University Duncan Groves, director and head of employment taxes, PSTAX Helen Hargreaves MSc FCIPPdip, associate director of policy & membership, CIPP Ian Hodson MCIPPdip, head of reward, University of Lincoln Ian Holloway MSc FCIPP, head of legislation and compliance, Cintra HR & Payroll Services Ltd Jas Jhooty, director, emTax Ltd David Paul, executive director People Advisory Services, Ernst & Young LLP Neil Tonks, legislation team at MHR How are you/your clients excluding the identified individuals from being treated as ‘employees’ or ‘workers’ for purposes of employment rights? Is it necessary for payroll and HR software to differentiate between the various types of worker? Helen Hargreaves: For employers to get this right they are going to rely heavily on their software functionality and the interaction between payroll and HR
software. And the pressure on software providers was even greater due to the delay in them receiving the specifications they needed to ensure the software would be able to deal with all scenarios – more of that later. But one problem that payroll software is not able to avoid is the one affecting workers with student loans due for repayment. If an individual is deemed to be a worker under this new legislation, any contractual payments to the worker must be net of employment tax (PAYE) and Class 1 NICs but there is no requirement to make deductions for student loan repayments from the payments made. It is the contractor’s responsibility to account for their student loan repayments when they submit their self-assessment (SA) return and it is via SA that they account annually for repayment on their earnings (where applicable). Unfortunately, even if the payroll
software can make the distinction between an employee and a worker, HMRC’s systems currently have no way of recognising if an individual reported in the full payment submission (FPS) is an employee or a worker caught by IR35. This means that HMRC is unable to prevent an automated SL1 notice from being issued instructing the fee-payer to commence student loan deductions in respect of this worker. Fee-payers have been asked to ignore any SL1 received for a worker who is being taxed under the new regime, and to not begin to deduct student loan repayments from the worker’s fees. Organisations will need to ensure that they have a process in place to prevent these deductions. Ian Hodson: We have discussed and agreed that the only way we can truly separately identify ‘deemed workers’ from the wider workforce is to place them on their own payroll. In order to meet the payment terms this has meant setting up a weekly payroll as the procurement arrangement can often mean quick turnaround times being agreed such as seven days from the date of invoice where our standard monthly pay cycle would not meet the deadline. We have had to carry out a lot of
Karen Beckett BA (Hons) FCIPP, head of payroll and benefits, Dorset Healthcare
| Professional in Payroll, Pensions and Reward | July/August 2017 | Issue 32 20
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