Be Prepared For Off-Payroll Working Rule Changes In The Private Sector
Jack Bonehill, Assistant Tax Manager at Dains Accountants, provides an insight into Off-Payroll Working Rule changes which could affect many private businesses.
Dated: 07 January 2020 Author: Jack Bonehill, Assistant Tax Manager
Does your business?
- Utilise workers who are not paid through your payroll
- Use temps through recruitment agencies?
If you answer ‘yes’ to either of these, you could be affected by the Off-Payroll Working Rules for the private sector, effective from 6 April 2021, and you should determine if you are.
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.
(The information in this article is based on draft legislation, which may be subject to change)
When are Businesses Affected?
Businesses using workers who provide their services through an ‘Intermediary’ are affected.
An “Intermediary” here 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 does not matter whether the Client contracts with the Intermediary directly or whether other entities are between the business and the Intermediary. So, if the supply chain reflects the diagram below the business would still be affected.
The entities between the business and Intermediary will also be affected; in the diagram above, the recruitment agency will be affected.
Obligations of Affected Businesses
It is the responsibility of the business using the Worker (‘the Client’) to assess whether the rules apply in relation to the worker.
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 – 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 is not done, all entities in the supply chain can be responsible for liabilities arising.
For smaller businesses, there is an exemption. If the Client business qualifies as ‘small’ the supply chain is outside the Rules. A Client is small where it meets at least two out of the following three criteria – turnover less than £10.2m; balance sheet total less than £5.1m; fewer than 50 employees. Therefore, monitoring the impact of growth in the business is important.
What Should Affected Businesses Do?
Businesses should start preparing for the Rules, to ensure compliance and minimise 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.
It may be tempting to take the line of least resistance and put all workers on the payroll. However, 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 Accountants can help you and your business to prepare for Off-Payroll Working Rules, please contact our Employment Services Team on 0800 298 3899 or email employmentservices@dains.com