Off-payroll working – the impact on the public sector
Off-payroll labour involves the engagement of individuals for services where the worker is paid outside the payroll.
Legislation included in the Finance Act 2020 confirmed the introduction of reforms to the off-payroll working rules from 6 April 2021 (commonly known as IR35) for those operating through intermediaries (such as a Personal Service Companies, ‘PSCs’).
How have the changes which came into effect from 6 April 2021 affected public sector organisations?
The framework of the IR35 rules, which has been in place since April 2017, continues to apply but with some additional obligations.
There is a need to provide a statutory Status Determination Statement (SDS) to the worker and any third party, for example a recruitment agency, setting out whether or not the arrangement falls within the scope of IR35 and the reasons for reaching that determination.
All parties in the labour supply chain will need to pass on and be aware of the organisation’s (end user’s) status decision and the reasons for that decision.
There is an explicit requirement to take ‘reasonable care’ in undertaking the status assessments. Failure to do so or failure to provide a Status Determination Statement can result in the end user being deemed the fee payer, where this is not already the case, resulting in a responsibility to account for PAYE/NIC withholding.
The end user of the services is required to set up a status disagreement process and must respond to any representations made by off-payroll workers or the fee payer within 45 days of receipt. Failure to comply with the process in the required time enables transfer of debt provisions to apply.
What should public sector organisations be doing?
Public sector organisations should continue to monitor compliance with the rules. HMRC has recovered some significant settlements from public sector organisations in relation to compliance failures.
Public sector organisations should:
- ensure ongoing review of their existing status determination processes and procedures for producing effective Status Determination Statements whilst demonstrating that reasonable care has been taken;
- review processes and systems required to manage status disputes within the required time to make sure deadlines are not missed; and
- undertake due diligence on the whole off-payroll worker supply chain. Transfer of debt provisions apply, transferring PAYE and NICs liabilities, ultimately to the public sector organisation in certain situations where there has been non-compliance in the chain.
How can RSM help?
Our specialists have a detailed knowledge of the rules and practical experience of advising on maintaining compliance.
We have a multi-disciplinary team of experts who can provide advice and help including:
- reviewing compliance with the rules;
- assisting with HMRC compliance reviews;
- designing or redesigning processes and controls, such as payroll, human resources, finance, data management and IT;
- bespoke training;
- developing a tailored approach to status determinations and employment status; and
- changes to your budgeting, compliance, contracts and key stakeholder communications and employment law support through RSM UK Legal LLP.