The new “off payroll” rules for workers in the public sector are planned to go live on 6 April.
HMRC have issued some guidance with more promised in the next few weeks and the draft legislation has been published but is likely to change before it is finalised.
We have an unfinished status tool that won’t be ready for public consumption until the end of February.
Some public sector organisations are making knee jerk decisions around the status of their contractors and expecting that everyone will be happy to have PAYE applied come April.
Payments will be taxable when paid not when earned so decisions will need to be made now for invoices paid post 5 April.
Some advisors are telling their clients that they have “work arounds” that can help avoid the impact of this legislation.
What could possibly go wrong?
If you are caught up in this, either as a public sector engager, intermediary or contractor – be careful. In all the hullabaloo, many people are failing to see the elephant in the room.
This is the simple fact that the changes are intended to collect the correct taxes only. No more, no less. They apply where a worker performs their service in a way which looks strikingly similar to that of an employee.
They don’t apply if a contractor is truly in business in their own account – even if the engager says so!
Here are a few things you may wish to consider before making your choice:
Putting an intermediary between the last agency in the chain and the worker may not always be the best answer. Besides the obvious MSC risks that this brings in some cases, HMRC are already talking about debt transfer legislation to enable them to collect the tax from the true “fee payer” if the new intermediary isn’t compliant.
You might not know this until years later – when you get the bill! There is nothing wrong with outsourcing the administration of the IR35 rules but beware of products that seem to offer an easy “out”.
The tool will not produce a conclusive answer in every case. Even if it does, your evidence trail will need to be superb and all parties will need to agree with the answers provided if you are to avoid HMRC disagreement.
Don’t expect the tool to be a get out of jail free card so ensure that you have proper policies and processes in place to keep you legal.
Workers who are outside of IR35, but taxed as though they are in, will walk. Even those that will continue to be paid without deduction are considering their options because of the confusion caused.
If a worker is outside of the new rules, you cannot simply opt to tax them as though they are caught without evidence to support your decision. Are you opening yourself up to a claim for illegal payroll deductions?
Some of the so-called solutions open you up to more risk that they solve. For example, the MSC rules contain complex debt transfer rules and override IR35 legislation.
A “one size fits all” will fit no-one. You have to assess each worker (or at least those in the same roles) and a blanket “treat everyone as though they are caught/not caught” wont work.
Where does that leave you?
The only real solution is some old-fashioned leg work………
- Establish who may be within the new rules
- Speak to suppliers, clients etc and agree what needs to be done
- Pick your supply chain carefully
- Get your duck’s in a row. Ensure contracts, working practices, staff knowledge supports what you have agreed
- Discuss with HMRC. Get on the front foot early, show them that you are in control
We’re working with lots of engagers, agencies and outsourcers to help them be ahead of the game so call us on 01252 863 700 if you need any help. Ignore that pachyderm at your peril!
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