How to Stay Safe from HMRC
28 May 16 | By: Jas Jhooty
One of the announcements in Budget 2016 was that Public Sector bodies would be forced to be responsible for operating a supplementary payroll on invoices received from Personal Service Companies (PSCs). HMRC have recently issued a new consultation giving details of how they are proposing this should occur.
This consultation is about reforming the intermediaries legislation to improve its effectiveness in the public sector. It seeks views on the impacts of this change and design details of the policy, including a new process to help determine whether an intermediary is in scope of the rules.
The consultation asks for opinions on:
The basis on which the rules are applied to determine whether a worker would have been an employee if engaged directly is not changing. This is the case for engagements with both private and public sector clients. The new rules move the liability to make the determination about whether the intermediaries rules apply, and the associated tax liability if so, from the PSC to the public sector end-client or agency or other third party closest in the chain to the PSC if there is one. Most importantly, the rules will not change for PSCs contracted to work for clients in the private sector.
Public Sector employers need to ascertain if certain suppliers will be caught within the scope of the new rules by answering yes to all of the following questions: -
Although decisions about whether the intermediaries rules apply are usually straightforward to determine for most workers, there are some honest misunderstandings on the part of businesses and individuals around what factors should determine employment status. Moreover, the government acknowledges that at the margins, there can be genuine uncertainty over employment status for tax.
The government aims to ease the burdens on Public Sector employers by truncating the normal raft of employment status questions to determine whether a PSC is caught by IR35 intermediaries legislation , to just two questions:-
If the answer to these two questions is not clear cut then all employers (be they Public Sector or Private Sector) can utilise HMRC’s to be published new Digital Tool for determining the employment status for PSCs. This will be based on the HMRC’s new ESI tool and will be available before April 2017 when the new rules are deemed to apply.
Under the new rules, liability to pay the relevant employment taxes will move to the engager or the agency supplying the worker. This means public sector organisations and agencies supplying workers to the public sector will be responsible for:
Sixteen questions accompany HMRC’s proposals contained in the consultation document. They cover various topics e.g. where agencies will have to test for IR35, the incidence of multiple agencies; VAT, transfer of liability and the 5% expenses rule, among other areas.
Respondents to this consultation have until 18th August 2016 to make their representations.
We recommend that all Public Sector employers start examining the actual terms and conditions of their engagements with off-payroll workers especially those supplied through their own Personal Service Company. Unfortunately, what is written into the contract for services is not as important as what happens in practice when it comes to determining a worker’s employment status.
Our consultants are ex-HMRC and also have extensive experience of working within the “Big 4” accountancy firms. We pride ourselves in being able to deliver “Big 4” quality employment tax advice but at a fraction of their prices.
We have devised a two stage process that will aid employers immensely in this matter. This comprises of: –
Having an auditable process to decide whether or not someone should be on the payroll will safeguard employers when HMRC next visit.
We have also launched a dedicated online service where we can offer accurate IR35 reviews free of charge. Click here to find out more information.
Please do not hesitate to contact us for help on this or any other employment tax matter.