HMRC have opened a new consultation ‘Off-payroll working rules from April 2020’ about extending the public sector off-payroll working rules to the private sector from 6 April 2020.
At Budget 2018 the chancellor announced that the public sector off-payroll working rules, which were introduced from 6 April 2017 will apply to medium and large businesses in the private sector from April 2020:
- Medium and large businesses (under the Companies Act definitions) who are engaging individuals who work via a Personal service company "PSC" will need to decide whether the Off-Payroll working rules apply to the engagement.
- Small companies will not be affected. When an organisation becomes/ceases to be small in an accounting period, for the off-payroll working rules the change will apply from the start of the tax year which follows the end of that accounting period.
- Two options are suggested for unincorporated entities:
- Rules to apply to unincorporated entities with 50 or more employees and to entities with turnover exceeding £10.2 million or
- Rules to apply only to unincorporated entities that have both 50 or more employees and turnover in excess of £10.2 million.
- Where it is determined that the rules apply, the business, agency, or third party paying the worker’s company would need to deduct income tax and employee NICs and pay employer NICs.
HMRC say that without these changes the cost of non-compliance with the off-payroll working rules in the private sector is expected to reach £1.3 billion a year by 2023/24.
The consultation proposes that the new rules should mirror those for the public sector but with adjustments to reflect the differences in the needs and range of activities of the private sector compared to the public sector. It proposes:
- To introduce a requirement for clients to provide status determinations to the off-payroll worker and fee payer together with the reasoning behind those determinations.
- To extend the rules for the transfer of the liability for income tax and NIC so that where HMRC does not receive the tax due, the liability initially rests with the party that has failed to fulfil its obligations by not providing the necessary status determinations.
- To introduce a client-led status disagreement process to deal with status determination disagreements between the client and the off-payroll worker and/or fee-payer.
Following concerns raised by stakeholders, HMRC have advised that they intend to improve the Check Employment Status Tool (CEST) guidance so organisations can confidently make employment status determinations that people working through intermediaries will be able to see and understand.
Summary of consultation questions:
Q1 Do you agree with taking a simplified approach for bringing noncorporate entities in to scope of the reform? If so, which of the two simplified options would be preferable? If not, are there alternative tests for non-corporates that the government should consider? Could either of the two simplified approaches bring in to scope entities which should otherwise be excluded from the reform? Is it likely to apply consistently to the full range of entities and structures operating in the private sector?
Q2 Would a requirement for clients to provide a status determination directly to off-payroll workers they engage, as well as the party they contract with, give off payroll workers sufficient certainty over their tax position and their obligations under the off-payroll reform?
Q3 Would a requirement on parties in the labour supply chain to pass on the client’s determination (and reasons where provided) until it reaches the fee-payer give the fee-payer sufficient certainty over its tax position and its obligations under the off payroll reform?
Q4 What circumstances may result in a breakdown in the information being cascaded to the fee-payer? What circumstances might result in a party in the contractual chain making a payment for the off-payroll worker’s services but prevent them from passing on a status determination?
Q5 What circumstances would benefit from a simplified information flow? Are there commercial reasons why a labour supply chain would have more than two entities between the worker’s PSC and the client? Does the contact between the feepayer and the client present any issues for those or other parties in the labour supply chain?
Q 6 How might the client be able to easily identify the fee-payer? Would that approach impose a significant burden on the client? If so, how might this burden be mitigated?
Q7 Are there any potential unintended consequences or impacts of placing a requirement for the worker’s PSC to consider whether Chapter 8, Part 2 ITEPA 2003 should be applied to an engagement where they have not received a determination from a public sector or medium/large-sized client organisation taking such an approach?
Q8 On average, how many parties are in a typical labour supply chain that you use or are a part of? What role do each of the parties in the chain fulfil? In which sectors do you typically operate? Are there specific types of roles or industries that you would typically require off-payroll workers for? If so, what are they?
Q9 The intention of this approach is to encourage agencies at the top of the supply chain to assure the compliance of other parties, further down the chain, through which they provide labour to clients. Does this approach achieve that result?
Q10 Are there any potential unintended consequences or impacts of collecting the tax and NICs liability from the first agency in the chain in this way taking such an approach?
Q11 Would liability for any unpaid income tax and NICs due falling to the client (if it could not be recovered from the first agency in the chain), encourage clients to take steps to assure the compliance of other parties in the labour supply chain?
Q12 Are there any potential unintended consequences or impacts of taking such an approach?
Q13 Would a requirement for clients to provide the reasons for their status determination directly to the off-payroll worker and/or the fee-payer on request where those reasons do not form part of their determination impose a significant burden on the client? If so, how might this burden be mitigated?
Q14 Is it desirable for a client-led process for resolving status disagreements to be put in place to allow off-payroll workers and fee-payers to challenge status determinations?
Q15 Would setting up and administering such a process impose significant burdens on clients?
Q16 Does the requirement on the client to provide the off-payroll worker with the determination, giving the off-payroll worker and fee-payer the right to request the reasons for that determination and to review that determination in light of any representations made by the off-payroll worker or the fee-payer, go far enough to incentivise clients to take reasonable care when making a status determination?
Q1 7How likely is an off-payroll worker to make pension contributions through their fee-payer in this way? How likely is a fee-payer to offer an option to make pension contributions in this way? What administrative burdens might feepayers face which would reduce the likelihood of them making contributions to the off payroll worker’s pension?
Q18 Are there any other issues that you believe the government needs to consider when implementing the reform?
The consultation ends on 28 May 2019. Responses and enquiries should be sent to:
Links to our guides:
Offpayroll working: PSCs & public sector engagements
Personal service company (PSC) tax
Managed Service Companies (MSCs)
External links:
