Government publishes tranche of “clear as mud” off-payroll working guidance

• Guidance sets out how a Personal Service Company (‘PSC’) should pay its worker when the off-payroll rules have been applied and the payment has been treated as deemed employment income by the fee payer to avoid double taxation 
• Guidance does not provide warning that, as the fee-payer will be responsible for shouldering the burden of employer’s National Insurance Contributions (“NICs”), they could reach the threshold to begin paying the Apprenticeship Levy, or, if they already do, their bill will increase 
•  Guidance states that the intermediary (PSC) should determine the worker’s status if their client has not passed on a determination, but does not clarify how long the PSC should wait before going so
• It suggests that if a determination hadn’t been passed down, you may approach your client to ask why, or, you are fully within your rights to make the payment with no Income Tax or NIC deductions
• It states that the Employment Allowance credit cannot be used against payments to deemed employees and so NI will be payable in full  
• Guidance for clients states that they must make the determination and pass on to the person/organisation they contract with. The guidance does not state that a client must also pass the determination to the worker, however legislation dictates this must be done 
• The guidance states the client must pass the determination to the person/organisation they contract with on or before the contract is entered into, or when the work starts, if this is later 
• Guidance details that a client’s failure to take reasonable care when making the determination will result in the worker’s tax and NICs becoming the client’s responsibility. However, there is no definition on what constitutes “reasonable care”
• A party may become liable for paying tax and NICs on a worker’s fees if;
  • They are the fee-payer (the entity immediately above the worker’s intermediary)
  • They are a party in the supply chain who has not passed on the determination to the person or organisation that they contract with
  • They are the first agency in the labour supply chain

Follow this link to view the guidance

• If you are the first agency i.e. the person who contracts with the client, HMRC guidance warns you to be careful about choosing your labour supply chain as you may become liable for any unpaid tax and NICs if HMRC cannot collect unpaid taxes from parties below you in the chain

Aspire Comment

Following the publication of the draft legislation which refers to powers to recover PAYE from any person who is party to the arrangements, the guidance provides us with clarification in relation to how Government will seek to collect liabilities from the first agency in the supply chain should they be unable to collect the liability from parties below it. This is in accordance with consultations we saw on this topic, but this was not mirrored in the actual legislation. Government is once again placing the burden on the “most influential entities in the chain” in the hope that the reforms will be self-policed by the UK’s biggest businesses. This will mean that due diligence in labour supply chains will become increasingly important as the first agency will need to be comfortable that they are not at risk of a transfer of debt.

Whilst we were promised clear guidance on the IR35 reforms in the private sector, unfortunately it doesn’t appear that this has been delivered in these publications. Despite a tranche of guidance being published or updated, in our opinion, the information available to those affected is not clear and in some cases, is not technically correct, which is extremely unhelpful given that the changes come into effect in just over 8 months.

Hopefully, Government will publish more guidance aimed at assisting the process of making the determinations and how exactly it intends to collect any unpaid taxes.

See our previous news:

Off Payroll Working from April 2020

Aspire at the HMRC ‘Off-payroll working rules form April 2020’ roundtable event