The proposed changes will potentially impact any medium or large UK business, including charities, who take on one or more workers operating through an intermediary such as a Personal Service Company (PSC). This includes arrangements directly between the business and the PSC as well as those where the business engages and off payroll worker through a recruitment agency or other intermediary. Small businesses will be outside the new rules, but how a small business will be defined is not yet decided. It is understood the criteria is likely to be adapted from that found in the Companies Act 2006 to define a small company.
Under current rules the PSC itself is required to assess whether the rules apply and it is understood that there is large scale non-compliance in this area. So instead the reform places the burden for making this assessment onto the end user of the services. If the rules apply the fee payer (which may be the end user or agency or other third party paying the intermediary) will become responsible for accounting for and paying the related tax and national insurance contribution (NIC), including the additional cost of employer’s NIC, to HMRC.
As a result many businesses will face additional costs and challenges which they need to prepare for at an early stage. Processes, and potentially additional resource, will need to be put in place to assess current and future engagements, and systems changes will likely be required to help meet these new compliance obligations going forward. Businesses will need time to make these preparations and plan for these additional costs. And whilst reform is clearly needed to tackle non-compliance it is hoped that the proposed solution does not prove to be disproportionately burdensome for any affected businesses to administer.
Quite apart from the additional burdens on businesses which may require many months of planning and preparation, there are other reasons why the proposed changes should not be pushed through with undue haste. Following the publication of the Government’s Good Work Plan last year we expect changes will eventually be forthcoming around the determination of employment status. It would be inappropriate to expect businesses to have to make substantial changes to systems and working arrangements to accommodate the new off-payroll working rules until clarity is provided or at least a timeframe is set for the introduction of any legislative test for determining employment status for tax purposes.