Off payroll working – status determinations and the status disagreement process

30 July 2019

What is the draft legislation regarding status determinations and the status disagreement process?

On 11 July 2019, the Government published its response to the off payroll working policy paper and consultation document along with draft legislation.

As well as confirming that the new rules will apply to payments on or after 6 April 2020, as expected, the draft legislation also confirms that end users of services via intermediaries, such as Personal Service Companies (PSC), will be required to make status determinations and pass these to both the worker and the fee payer (now referred to as the deemed employer). 

It has also been confirmed that the end user client will be required to set up and lead a status disagreement process, which will increase the administrative burden for businesses.

Requirement to provide a status determination statement

The draft legislation confirms that end user clients will be required to provide a status determination statement to both the worker and any third party such as an agency, that it contracts with. There will be a requirement for the statement to show whether a particular engagement is regarded as in or outside of the rules and the reasons behind that conclusion. There will also be a requirement to apply reasonable care when reaching the determination.

End user businesses will need to ensure that they have appropriate processes in place to make and pass on the status determination statement to both the worker and any third party that they contract with. The legislation confirms that if this obligation is not met then the end client will take on the responsibilities of the fee payer (for example to operate PAYE/NIC if applicable).

The draft legislation also confirms the position if an end user has previously provided a status determination statement and then becomes a ‘small’ business and, therefore, exempt from applying the new rules. In this situation, the end user must issue a statement to the worker and any third party advising of this and the earlier status determination statement will be withdrawn from the start of the next tax year. In this situation, the PSC will be required to self-assess as per the existing rules.

Requirement to set up and operate a status disagreement process

The draft legislation confirms that the end user client will be required to set up a status determination disagreement process which will further add to the administrative burden for medium and large businesses. The Government have stated that the end client is best placed to resolve status disagreements in real time as they believe that the vast majority of end clients have HR or procurement functions that will be able to make determinations.

Specifically, the draft legislation states that if the worker or the third party make representations to the client claiming that conclusions in the status determination statement are incorrect, the client will be required to respond within 45 days of receipt. Failure to do so will mean that the end client will potentially be treated as the fee payer and will be responsible for PAYE/NIC.

Under the status disagreement process, the end user client will need to respond within the 45 day time frame informing the worker or the third party of the outcome of its considerations. If it is concluded that the original determination was correct, it must provide the reasons why it believes the original determination was correct. If on review it is concluded that the original determination was incorrect, the end user will be required to issue a new status determination statement to both the worker and the third party.

In order to be compliant with these obligations, clients will need to ensure that they have robust processes, procedures and controls in place to both meet the obligations in respect of the initial determinations and in order to respond under a status disagreement process within the required timeframes. Failure to do this will result in liabilities for the end user. End users will also need to implement training to ensure that employees responsible for these obligations have the appropriate skills and knowledge.

If you have any questions or concerns about IR35, including on how you can best prepare for change, please contact David Williams-Richardson, Susan Ball or Lee Knight