The Law Society and ATT have again expressed concern that the draft legislation which extends the off-payroll working rules to the private sector fails to protect parties who are not at fault from secondary PAYE liabilities.
Following a consultation, from 6 April 2020 the government is extending off-payroll working in the public sector to the private sector. The off-payroll working rules apply in cases where, if you worked directly for the end client you would be deemed to be its employee in terms of the employment status tests.
- The change will only apply to engagements by medium or large end clients.
- The personal service company (PSC) owner will be paid by its payer (usually an agency) after deduction of PAYE/NICs and the PSC will no longer have to self-assess IR35.
As currently drafted Finance Bill 2020 provides that the liability for PAYE can be transferred to the agency or client at the top of the labour supply chain even where they have taken reasonable care, if the party who should have made the payment fails to do so.
Whilst the government confirmed in the response to their consultation that it was not intended that liabilities would be transferred where there was a genuine business failure, or where deliberate tax avoidance had not occurred, the draft legislation as currently written does not set out any conditions under which a transfer of liability may or may not take place.
Instead it provides only that PAYE regulations may authorise a recovery of an amount “that an officer of Revenue and Customs considers another person should have paid under PAYE regulations in respect of a deemed direct payment”. As a result, under the rules as currently drafted HMRC would appear to have discretion as to when they can transfer such a liability.
In a recent case dealing with the transfer of a PAYE liability from an employer to an employee, under HMRC's discretionary powers, the First Tier Tribunal said that it did not have the jurisdiction to interfere with whether or not HMRC had properly exercised their discretion or to consider the application of the PAYE regulations. It is to be hoped that the final version of the Finance Bill, and as yet unissued HMRC guidance on these new rules, will go further in setting out and limiting when HMRC can transfer PAYE liabilities in respect of deemed direct payments.
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