01 March 2021
Lora Murphy ACIPP, CIPP policy and research officer, provides a timely update
There are many who believe that the off-payroll working reforms which are scheduled to be in force from 6 April 2021, will again be postponed, and there are others who think the reforms will be abandoned entirely; however, there is no concrete indication that either of these beliefs are true. That is why it is essential that companies, if they haven’t already done so, start preparing.
There has been much published on the topic of off-payroll working as it was due to be introduced from 6 April 2020 but, in recognition of the ongoing impact of coronavirus on businesses, the government postponed the reforms for a year. Amendments to the Finance Bill have been tabled, which will allow the amendments to go ahead from 6 April 2021.
There are a host of considerations in relation to the off-payroll working reforms that companies may not have thought of. As always with payroll policies, the devil is in the detail, and those details need to be accounted for.
The latest edition of HMRC’s Employer Bulletin (see http://ow.ly/4BzO30ro6dn) confirmed that student loans and postgraduate loans should not be deducted from the pay of workers engaged through their own companies, who are paid via pay as you earn (PAYE), as the responsibility lies with the individual upon completion of their self-assessment tax return.
In scenarios where the ‘Off-payroll worker subject to the rules’ indicator has been selected in an employee record, and a student or postgraduate loan deduction is shown in the full payment submission (FPS) submitted to HM Revenue & Customs (HMRC), a generic notification message will be sent via payroll software to advise that corrective action must be taken. If the indicator has indeed been selected in error, then it should simply be unselected.
At present, the indicator should only be used for contractors providing their services to the public sector and deemed as being within the off-payroll working rules. As widely publicised, however, from 6 April 2021 the indicator should be used for contractors determined as within the off-payroll working rules if they are providing their services to medium- and large-sized non-public sector organisations. There are no imminent changes to the rules surrounding off-payroll working in those non-public sector organisations defined as being small. In order to be eligible for the small companies’ exemption, a business will need to satisfy at least two of the following requirements:
it has an annual turnover of no more than £10,200,000
it has a balance sheet total that does not exceed £5,100,000
it has an average of fifty or less employees for the company’s financial year.
In HMRC’s Employment Status Manual (see page ESM10033A, http://ow.ly/boAh30ro6t7) there is detailed guidance on how to proceed where a deemed employee wishes to take a period of parental leave or has a period of sick leave. The person will be eligible for the associated statutory payments where the standard qualifying conditions are met. The eligibility arises from the worker’s direct employment with their intermediary and not from the deemed employment with the end-client.
In line with normal rules, the intermediary is able to reclaim a minimum of 92% of the statutory payments from the government via the employer payment summary (EPS). Where the intermediary is defined as being a ‘small employer’, a reclaim for 100% of the payments can be made, plus a compensatory element of 3% (which is, however, subject to change.)
If an employee of an intermediary falls sick and is required to take absence leave then they are also entitled to statutory sick pay (SSP) should they meet the eligibility requirements that mirror that of any other employee. As of 6 April 2014, however, employers are not able to reclaim from the government any of the costs incurred as a result of payment of SSP. Therefore, the intermediary is also prevented from reclaiming SSP.
Where the fee-payer makes payment to a deemed employee via payroll, the earnings are counted as qualifying earnings for the purposes of statutory payments. They would not be subject to additional tax and National Insurance contributions (NICs) when further payment is made through the intermediary. The non-taxable and non-NICable payments through the intermediary must be reported via the FPS, within box 58A, which is utilised for non-taxable and non-NICable payments. HMRC’s Data items guide has subsequently been updated to reflect the fact that box 58A will be used to record any payments that were previously subject to tax and NICs under the off-payroll working rules.
To summarise, the worker’s eligibility to statutory payments is derived from their employment with the intermediary. If the earnings reported meet at least the lower earnings level for class 1 NICs, and other qualifying conditions are met, then the worker will be entitled to statutory payments.
In some scenarios, a worker could receive a portion of earnings subject to deductions under the off-payroll working rules, and some that have not. In determining entitlement to statutory payments, all earnings in relevant periods are taken into consideration, so both off-payroll working income and non-off-payroll working income are used for the purposes of establishing entitlement.
....essential that companies, if they haven’t already done so, start preparing.
Technical change to off-payroll working legislation
The written statement, made in November by Jesse Norman, financial secretary to the Treasury, (http://bit.ly/38jByTE), confirmed that a technical change to the off-payroll working rules will be made in the next Finance Bill.
The amendment will ensure that the legislation operates in the way intended and will correct a previous unintended widening of the definition of an ‘intermediary’, which went beyond the intended scope of the policy. The change will be made to the NICs regulations once the Finance Bill has been introduced to Parliament, and this will be actioned prior to the introduction of the amendments to the off-payroll working rules on 6 April 2021.
Status determination statements
Businesses will need to begin establishing the status of workers engaged through their intermediary and every worker that they engage through an agency. The determination must be communicated via a status determination statement (SDS).
The SDS, which must subsequently be provided to the worker and the person or organisation that a business contracts with, is to include the conclusion and the reasons behind the decision. HMRC guidance asserts that reasonable care must be taken upon making a determination (see http://ow.ly/urBi30ro6X1).
Although businesses can begin to prepare now, as a SDS can be issued prior to 6 April 2021 in circumstances where the rules apply, they will need to ensure that they keep detailed records of any employment status determinations, including the reasons for the determination and the fees paid. They must also make sure that they have appropriate processes in place through which to deal with any disagreements that arise from the determination. There will also be a need to confirm the size of the organisation in instances where the person or organisation that the business contracts with, or the worker, requests this information.
HMRC’s check employment status for tax tool (http://ow.ly/drq630ro70u) can be used to assist in determining whether or not the off-payroll working rules apply to a contractor.
Featured in the February 2021 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.