For the last 20 years, responsibility for determining employment status and handling the tax liability under IR35 has been with the Personal Service Company (‘PSC’). The reforms mean that the End User will determine whether the engagement is inside or outside IR35; the party paying the worker’s PSC (the fee-payer) is treated as an employer for the purposes of PAYE tax and National Insurance (‘NI’).
We are only months away from HMRC’s April 2020 proposed major changes to off payroll working. If you engage with workers who are not on your payroll you are an End User and you need to plan and be aware of your responsibilities, whether you engage direct or via an Agency.
The changes will effectively roll out the rules introduced in 2017 in the public sector to most business engaging contractors through PSCs; End Users classed as ‘small’ for Companies Act purposes are not affected.
For End Users who are affected it will mean:
- Assessing the employment status of the individuals doing the work, often the director of the PSC
- Using HMRC’s updated Check Employment Status Tool (‘CEST’)
- Issuing a Status Determination Statement (‘SDS’) to workers regarded as employed and any Agency
End Users paying the PSC directly will need the information to put the worker on the payroll and must deduct PAYE tax and NI, including the employer’s NI and pay it to HMRC. They will need a robust process to deal with invoices and how payments will be made. HR, purchase ledger and payroll teams will need to communicate and understand their responsibilities.
End Users paying the PSC through another party, often an Agency, must pass the other party a copy of the SDS. In the case of multiple agencies the SDS is passed along the chain to the body which pays the PSC, known as the Payer. The Payer has the responsibility for the administration of the payroll deductions.
The key elements of the process are:
- The fee-payer is treated as an employer for income tax and NI purposes
- The amount paid to the worker’s intermediary for the worker’s services is deemed to be a payment of employment income, or of earnings for NI for that worker
- The person deemed to be the employer is obliged to remit payments to HMRC and information about the payments using Real Time Information (RTI)
- The End User will prepare an SDS and pass it to the Agency and the Contractor
- There is a 45 days appeal period for disputed status decisions.
You should now be reviewing your:
- Contractor workforce to see how many are paid off-payroll via PSCs
- Internal processes to determine whether your PSC engagements are within IR35
- Contractual engagements to reduce the number falling within IR35