Off Payroll Working Rules For The Private Sector
Could your business be affected?
If your business uses workers who are not paid through your payroll or uses temps through recruitment agencies then your business could be affected.
If you are affected, you should prepare for the rules to ensure compliance, Failure to comply may result in tax underpayments along with interest and potential penalties.
When are businesses affected?
Businesses are affected when they use workers who provide their services through an ‘intermediary’.
An ‘intermediary’ means a limited company, partnership or individual meeting certain conditions, but is usually a limited company where the worker is the sole owner, typically called a Personal Service Company (PSC).
It doesn’t matter whether the business contracts with the intermediary directly or whether there are other entities between the business and the intermediary. The business will still be affected.
The entities between the business and intermediary will also be affected. In the diagram above, the recruitment agency will be affected.
If you are an affected business, what are you obliged to do?
It is the responsibility of the business using the worker (known as ‘the Client’) to assess whether the rules apply to them.
To make that assessment, the Client has to determine whether if the worker contracted with the Client directly, they would be an employee of the Client, effectively meaning any entities between the Client and the worker are ignored. If the Worker would be an employee, the rules apply. Reasonable care must be taken when making the assessment.
The assessment must be passed down the supply and the Client must respond to worker disagreements with the assessment within 45 days.
The entity paying the intermediary must then process that payment through its payroll, paying PAYE, National Insurance and Apprenticeship Levy where appropriate. If that isn’t done, all entities in the supply chain can be responsible for liabilities arising.
For smaller businesses, there is an exemption as if the Client business qualifies as ‘small’, the supply chain is outside the rules. A client is small where it meets two out of the following criteria: turnover less than £10.2m, balance sheet total less than £5.1m; fewer than 50 employees.
What should you do if you are an affected business?
Businesses should start preparing for the rules, to ensure compliance while minimising costs.
Whilst preparation will vary from business to business, those affected should identify the workers being used through intermediaries and assess whether the rules apply to those workers.
Although, It may be tempting to put all workers on the payroll, this will result in increased costs to the business and may result in losing or being unable to attract valuable workers.
It is recommended that all potentially affected businesses seek professional advice as soon as possible.
To find out how Dains can help your business to prepare for the Off Payroll Working Rules, please speak to our Employment Services team on 0121 2007967.