IR35 and Off Payroll Working – Gearing up for April 2020 and news about our Webinar on 10 December

Thu 28 Nov 2019

As April 2020 approaches, we are seeing momentum gather in respect of organisations gearing up for the introduction of the Off Payroll Working (OPW) rules (even with the imminent General Election and various manifestos).

There has been a lot of commentary in the press and social media in relation to OPW. With so many views and opinions on recent employment status cases brought before tribunals and the courts, it is easy to lose sight of what the basics are.

With this in mind, we provide below some reminders of the actions that engagers should be taking now.

Engagers of off payroll workers

Under the new rules, it is the engager’s responsibility to identify whether the individuals who make up the off payroll “workforce” should be considered employees for income tax, NIC and Apprenticeship Levy charge purposes or not. To do this, they need to make an employment status determination on the actual working arrangements under which each individual worker provides their services.

In preparation for April 2020, engagers will need to put in place a process by which they can identify their off payroll workforce.  This can be difficult especially in organisations where there is no central point controlling the engagement of off payroll workers.  One key aspect that organisations need to review as a starting point is their role as “engager” when there are multiple parties in the supply chain.

1 – What can I do now?

Organisations should already be thinking about:

• Where should overall responsibility for OPW sit within its structure?
• Does it have the necessary in-house knowledge and expertise to determine a worker’s employment status?
• When an employment relationship would otherwise exist, how are payments captured for tax/NIC withholding?
• How many existing suppliers will need to have status determinations undertaken to consider if an employment relationship exists for tax purposes?

2 – Do I have good governance?

To demonstrate a robust approach to compliance with the new rules it is critical that organisations put in place good governance.  This helps show HMRC that reasonable care is being taken, which will significantly reduce exposure to liabilities and penalties if they are able to challenge any status determinations successfully. Good Governance can include:

• Process maps.
• Policy documents.
• Employment status assessment tools.
• Risk registers.

There are other subtleties which you may want to cover within your governance.  For instance, what does the worker’s LinkedIn profile show, do they have their own website – are they portraying themselves as someone providing services to you; or are they portraying that they are employed by you? 

Whilst we would not anticipate HMRC to successfully challenge a genuine self-employed relationship based on a LinkedIn profile alone, it is important that a consistent (and accurate!) appearance is given to reduce the risk of HMRC interference.

How we can help: At Mazars, we are assisting clients with implementing robust procedures and helping them frame what good governance looks like.

3 – Are my off payroll contracts robust?

When undertaking employment status checks HMRC will review both the contractual and actual working arrangements.  Where they differ, HMRC will usually base the employment status on the actual working arrangements.

Now is also the time to review your off payroll contracts. 

• Do contracts reflect the actual arrangements under which the services are provided? 
• Is the contract robust to stand up to HMRC scrutiny?

How we can help: We are assisting clients review their contracts / working practices and help update them where required.

4 – Employment Status Determinations

HMRC has said it will stand by the results of determinations made using its Check of Employment Status (CEST) tool.  However, this is dependent upon the information being entered accurately.  This tool is also being successfully challenged in tribunals where it has been found to be not providing an accurate assessment of employment status – this has been particularly shown in Lorraine Kelly’s recent case (click here for more information).

Given this, on 25 November 2019, HMRC updated the tool and this has received widespread attention. However, the tool, despite being updated, still does not currently give any weighting to Mutuality of Obligation. It is our view that it is blunt in its analysis of employment status. We do not feel it adequately takes into account all the various factors that impact on status, which can vary from person to person in a similar role and also from role to role (e.g. HGV driver Vs a specialist Cyber Security consultant). Additionally, the new tool does not follow how IR35 tribunals have recently assessed status.  It also deals with control and substitution in a different manner to the Courts. This highlights that organisations will need to go “beyond CEST” to ensure they have effective compliance controls in place, particularly given the recent difficulties experienced by ‘NHS Digital’ which gave them a £4.3m liability even though they had used CEST.

Employment status determinations should be performed before an individual’s PSC is formally engaged, by someone who is experienced and has been adequately trained in employment status assessment.  It should then be reviewed where engagements are extended or changed. 

The organisation should share its determination result with the PSC and, with the entity that pays the PSC if the organisation does not pay the PSC directly, given that it is the paying party that will need to administer the decision via payroll (where found to be inside IR35).

These procedures should be part of a larger governance project to ensure that any disruption to business as a result of the introduction of the new rules is minimised.

How we can help: Employment status is complex area and we are helping clients with undertaking training sessions, assisting with communication strategies, contracts as well as helping with actual assessments and reviewing the results.

When an organisation pays the PSC directly and an employment relationship is determined, organisations will need to consider how the payments are captured for tax/NIC withholding.

5 – Payroll Practicalities

Some practical questions to consider:

• The information payroll function will need to set up a payroll record.
• What PAYE code number should be applied?
• What pay period should be used for income tax and NIC purposes?
• How will finance function know that invoice payments should be paid after deducting tax/NICs?
• Will off-payroll workers be reported via a separate payroll?
• Will off-payroll workers be identified on the payroll separately from employees?

It will be important that the various functions within the organisation know their role and share information timely. 

How we can help: We can help mediate between the various functions to implement processes to ensure information flows timely and captures all necessary details.

Next Steps and the first Let’s Talk Tax monthly webinar

To help organisations further, we are sharing our practical knowledge on OPW, IR35 and Employment Status in more detail in our first monthly Let’s Talk Tax webinar. This is being held on Tuesday 10^th December at 10am. To register for this please click here – a recording of the webinar will be made available for a limited time following the webinar.