Public sector bodies and off payroll workers

Public sector bodies and off payroll workers
 
From 6 April 2017, public sector bodies will be responsible for determining whether workers not paid by the payroll are caught by the new off payroll worker rules.
 
This article is intended to answer some of the frequently asked questions by public sector bodies. It will, of course, be of interest to the off payroll worker but they should seek their own professional advice.
 
What is regarded as a public sector body?
 
Public sector bodies includes a wide range of entities and may include charities and academy schools.
 
The public sector body will be affected by these rules changes if they are deemed to be a public body for the purposes of the Freedom of Information Act or a publicly owned company owned by the Crown or the wider public. 
 
You should check with your legal adviser whether you are deemed to be a public body for the purposes of the Freedom of Information Act.
 
What is the impact of the new rules?
 
If the new rules apply it effectively requires individuals working through an intermediary body to pay broadly the same amount of tax and national insurance as employees. 
 
It will apply if the individual, taking into account their working circumstances, would have been an employee if they had provided their services directly rather than through an intermediary. 
 
The responsibility, until now, has always been imposed upon the individual worker to determine whether the legislation applies. That responsibility now passes to the public sector body.
 
What is an intermediary?
 
In most instances, an intermediary will be the engaging entity between the person carrying out the work and the public sector body. For instance, an individual may work through their own limited company which provides the services of the worker to the public sector body. 
 
Similarly, the individual may provide their services through a partnership or via another individual.
 
However, individuals providing their own services in a self-employment capacity are not deemed to be an intermediary and as such the new rules imposed from 6 April 2017 do not affect payments to such individuals. However, it is worthwhile checking whether they would be regarded as an employee as if their status is queried by HMRC upon a PAYE audit/inspection, it could result in taxes, penalties and interest being paid to HMRC by the public sector body.
 
What action do I need to take in the meantime?
 
You should review the status of all off payroll workers that you engage – directly or through an agency. 
 
You will need to review all off payroll workers contracts to determine whether the arrangements are caught by the changes coming in from 6 April 2017. If they arrangements are caught, then this will need to be communicated to the intermediary/worker.
 
You will also need to consider reviewing current systems to ensure that any future workers that may be caught by these changes are identified. 
 
Also any changes in contracts regarding working arrangements will need to be continually reviewed as there may be a change in whether these rules apply or not.
 
How do I determine if the worker is affected?
 
To enable the public sector body to determine the position, HMRC have developed an online status checker
 
 
There are many questions to answer about the working arrangements and at the end, the HMRC checker will advise whether the worker is caught by the new legislation. We would recommend that you print the outcome and retain it should HMRC query the outcome. 
 
Clearly the outcome is based upon the answers that you give to the questions and if this is not a true reflection of the arrangement then HMRC could make a determination further down the line. However, we believe that HMRC will stand by the result as long as the information given is accurate.
 
If it does apply, what action do I need to take?
 
If this does apply then the public body would need to deduct PAYE tax and employee’s national insurance from the deemed payment to be made. No deductions for student loan repayments need to be taken. If the new rules apply, the public body would also need to pay HMRC employer’s national insurance.
 
The worker would not actually transfer to the payroll, but they may request to be transferred to the payroll so that they get the benefits of employment such as sick pay, holiday pay, redundancy pay etc. Clearly this is a commercial decision for the public body.
 
All payments and reporting are to be made in accordance with the usual RTI payroll system.
 
The worker will be required to provide details such as their national insurance number, identity and tax code so that the correct tax and national insurance payments can be deducted. If no tax code is available, then you should follow the usual procedure in place for new starters and complete form P46.
 
What is the deemed payment?
 
The deemed payment is the amount of payment (excluding VAT) less the cost of materials used in the performance of services and such expenses that would have been deductible if the worker had been an employee and those expenses had been met by the worker out of their earnings.
 
What happens if I don’t take any action or get it wrong?
 
If you do not take any action or get the status incorrect, then it could result in the public sector body being liable for the tax and national insurance that should have been deducted from the worker. It is likely that interest and penalties will apply too.
 
Where can I find more detailed information?
 
HMRC have provided a technical note here.
 
 
As always, our academies team is here to help and await your phone call on:
 
Darlington – 01325 349 700
Durham – 0191 384 2244
York – 01904 784 400