The definition of public authorities (as set out in the Freedom of Information Act 2000 and the Freedom of Information (Scotland) Act 2002) is wide reaching and includes national and local government organisations and the national health service, as well as academies, universities, colleges and maintained schools.
The intermediaries legislation (known as IR35) has been in existence for many years and is well known by those affected by it. It ensures that individuals who work through their own PSC pay employment taxes in a similar way to employees, where they would be employed were it not for the PSC or other intermediary that they work through. However, due to concerns that IR35 is open to abuse and has not been effective in collecting all taxes due from such arrangements, the government has decided to adopt more stringent off-payroll workers rules for individuals working for public authorities through PSCs or their intermediary agents.
For all direct engagements between public authorities and PSCs, if the engagement falls within the intermediaries legislation conditions, income tax and NICs will need to be withheld by the public body at source through PAYE, and the relevant payment made to HMRC through RTI. In addition, the public authority will also need to account for employer's NICs and any apprenticeship levy costs arising. If the engagement falls outside the intermediaries legislation conditions, the public body may pay the PSC or intermediary gross.
Where a public authority engages a PSC worker through an intermediary agency, it will need to consider the intermediaries legislation and notify the agency whether income tax and NICs should be withheld from payments to the PSC at source.
What do academies need to consider?
- The new rules affect all payments to a PSC (whether direct or through an intermediary agent) made on or after 6 April 2017, even if the services were provided prior to this.
- The 5 per cent allowance available to PSCs engaged by other (non-public sector) organisations is not available as a deduction for the public body (or the PSC).
- VAT will remain payable to the PSC if the PSC is VAT registered.
- HMRC has set up an employment status intermediary's team that will monitor compliance of the new rules.
- The release of HMRC's online employment status service digital tool has been delayed, but is now available for use by public bodies and intermediary agencies that intend to rely on it to support their decision making in relation to ongoing engagements.
The full article also explores what academies need to go to get ready for the changes, what should intermediary agencies be doing in relation to public authority engagements and the wider effects. Download your copy now.