HMRC's policy briefing 'Supporting organisations to comply with changes to the Off-Payroll Working rules (IR35)' notes a one-year soft landing on penalties and contains some useful examples to illustrate how it expects to deal with PAYE compliance reviews.
The Off-Payroll Working rules extend to medium and large-sized private engagers from 6 April 2021.
HMRC's briefing confirms:
- No Penalties for inaccuracies in the first 12 months of the operation of the extended Off-Payroll Working rules unless there is evidence of deliberate non-compliance.
- It will not use information received under the regime to open new compliance enquiries into Personal Service Company (PSC) returns for tax years before 2021/22, unless there is reason to suspect fraud or criminal behaviour.
- It will continue to challenge tax avoidance schemes that claim to avoid the Off-Payroll working rules or otherwise to reduce the tax payable
- A specialist team will carry out all our Off-Payroll Working compliance activity.
HMRC's examples of PAYE compliance failures included in the briefing confirm some useful points:
- The size of the End-Client sets the criteria as to whether public sector or private sector Off-Payrolling or, IR35 applies.
- When the Off-Payroll rules apply, it is the End-Client, not any agency in the labour supply chain, must make a Status Determination Statement (SDS) in respect of each worker.
- HMRC accepts the results of its online Check Employment Status for Tax (CEST) tool in determining a worker’s employment status for tax and NICs purposes.
- The Fee Payer must operate PAYE/NICs, the Fee Payer will be the End-Client unless it is agreed that an employment agency is the PAYE employer, if so, the SDS is passed to that agency who then operates PAYE/NICs accordingly.
- The End-Client alone is responsible for handling disputes over the SDS.
- The person who will be penalised for compliance failure depends on the nature of the failure:
- An End-Client will be penalised for a failure to make a SDS or pass on a SDS.
- A failure to operate PAYE/NICs will turn on who is the Fee Payer for PAYE/NICs, generally this will be an agency in the chain, but it may be the End-Client.
Workers who no longer contract for work via a PSC, should in theory simply become employees of whatever entity is employing them. In a simple agency supply chain this will generally an agency or the End-Client. It should be apparent from the contract. What is confusing for many workers is that many large recruitment or staffing agencies will often dicate that workers are employed and paid via a separate umbrella company. As this arrangement may result in hidden costs for the worker it could actually be simpler for the worker to continue to work via their PSC.
Useful guides on this topic
Off-Payroll Working: At a glance
Which rules apply and when?
IR35: Off-Payroll Working
What is the IR35 version of the rules? How does it work? Will it still apply from 2021/22? How is the deemed payment calculated? What expenses are deductible?
Personal Service Company (PSC) tax
What is a PSC? What are the tax implications for a PSC?
Off-Payroll Working: PSCs & Public Sector Engagers
The 'Off-Payroll Working' rules move IR35: the responsibility to assess a worker's employment status and to deduct Pay-As-You-Earn (PAYE) and National Insurance Contributions (NICs) from a worker's fees to the engager.
Off-Payroll Working: PSCs & Private Sector Engagers
This is HMRC's term for providing your personal services as an individual worker via an intermediary, e.g. via your own Personal Service Company (PSC).
HMRC employment status tool
CEST 'Check Employment Status for Tax'. This tool can be used by workers, agencies and engagers in order to determine whether a worker is employed or self-employed for tax purposes.
RTI: Real-Time Information for PAYE
RTI is reporting payroll almost in 'real-time' to HMRC. Employers report to HMRC electronically in advance of making any salary or wage payments to employees.