Off-payroll engagements update

27 January 2017

HMRC has recently published draft legislation following the 2016 Autumn Statement, which provides clarification on a number of areas.

The new rules relating to off-payroll engagements of workers supplied via an intermediary are still on-track for implementation in April 2017. For the purposes of these rules, the intermediary can be a limited company (personal service company), but can also be a partnership (where the worker has at least a 60 per cent share) or even another individual. All public sector bodies that engage workers supplied through an intermediary will need to consider all necessary employment status factors (control, substitution, mutuality, etc) in order to determine whether a ‘deemed employment’ exists.

Where the new rules apply, the engager must operate PAYE to pay over to HMRC the income tax national insurance contributions (NICs) (and apprenticeship levy) on the payments made, as the fee paid to the intermediary is treated as a payment of the worker’s employment income. It is important to note that other employment rights will not apply, such as stakeholder pensions, statutory payments, etc.

Where a public authority engages a worker, who provides his personal services via an intermediary, the authority must inform the worker of the decision as to whether PAYE deductions will be made or not. It is therefore vital that thorough procedures are introduced to identify all such workers who may be caught by these new rules. We are currently working with a number of clients specifically in these areas. It is important to remember that failure to correctly analyse and process such payments from April 2017 may give rise to penalties based on the deductions that should have been made.

The online HMRC digital tool for public sector organisations to use should be available ahead of 6 April 2017. HMRC is currently in private testing with invited stakeholders and anticipates public testing will start in February.