Off-payroll working and the collection of student loans
10 April 2017
From 6 April a new responsibility will be placed on:
Public authorities who hire off-payroll contractors
Agencies and third parties who supply contractors to the public sector
Contractors who provide their services to a public authority through an intermediary.
The new rules, which will see the responsibility for assessing whether a contract for services is caught by Intermediaries legislation (IR35) pass from the contractor providing the services, to the public sector engager.
HMRC have designed a new digital tool to aid public sector engagers, agencies and contractors when making this decision.
The new regime will impact all payments made from 6 April, regardless as to whether the work was completed before then.
Where it is deemed that an engagement is caught by the rules, the fee payer will become the employer for the purposes of collecting income tax and class 1 National Insurance contributions (NIC). The payment will be processed for income tax and NIC deductions using the payroll system and details of the worker will be submitted to HMRC using the Full Payment Submission (FPS).
Student loan impact
In the meantime, in another part of HMRC, processes continue regarding the collection of Student loan repayments.
The contractor caught under IR35 is responsible for accounting for their student loan repayments when they submit their annual Self-Assessment (SA) return, and it is via SA that they account annually for repayment on their earnings (where applicable).
HMRC systems currently have no way of recognising where an individual who is detailed on the FPS is an employee or a worker caught by IR35.
As such, where their details are matched within HMRC systems as being an SL ‘borrower’ a form SL1 will be issued to the fee payer to initiate a start of student loan repayment, where earnings exceed the threshold.
If a fee payer receives an automated SL1 for a worker who is being taxed under the new regime, they are being asked by HMRC to ignore this notice and to not begin to deduct student loan repayments from the worker’s fees and, where student loan deductions have already been deducted, to stop from the next available pay date.
This is not something that an automated payroll system will easily adapt to and so affected ‘employers’ will need to build in to their processes, where possible, a method to prevent these repayments from starting. In the event that they can’t, the payment will be credited against the workers Student Loan Company account. Meanwhile the worker should continue to account for student loan repayments via their Self-Assessment Tax Return.
Where an SL1 has been issued, and the public authority (or the agency serving the authority) have been able to prevent deductions being made, they will begin to receive, from HMRC, reminder emails via the Generic Notification Service (GNS) which serves as a prompt for employers to begin making deductions for student loans where none are being reported on the FPS.
This process, which began in April 2016, includes a first reminder, then if no action is returned via the next FPS, a second email prompt is issued, which is followed by a telephone call to enquire why no action has been taken. HMRC, who are unable to identify a worker, as opposed to an employee from the FPS, are unable to switch off this service for the 2017-18 tax year.
It is likely that guidance will be published or cascaded that confirms the final stance being taken until HMRC systems can be amended to enable the employer to highlight on the FPS where an individual is caught by IR35. This is the call being made from stakeholders at the Collection of Student Loans Consultation Forum and through other relevant forums.
Recently updated guidance