New off-payrolling rules

Published 13 January 2020 by Inspire Professional Services Ltd

From April 2017, the rules changed for individuals working through a PSC (“Personal Service Company”) / intermediary for clients in the public sector.  Previously the PSC/intermediary would need to decide their worker status, however, from April 2017, the client / fee-payer (being the public sector organisation) would need to decide the workers status.

The rules now apply to clients / fee-payers who are medium and large private organisations from April 2020.

The rules do not apply to private companies who are termed as small. However, this is seen by many commentators as a trial run before extending to all businesses so if you are under the following size limits, it is still worth bearing in mind for the future.

A company is not small if it breaches 2 or more of these limits:

  • Turnover is more than £10.2m
  • Gross assets are more than £5.1m
  • Employees number more than 50

If the rules apply to a particular contract, the end-user/company running the contract, would need to account for and pay the tax and NI liabilities through RTI and deduct tax and NI from the fees it would pay the PSC/intermediary.

The worker should receive an employment status determination from the client / fee-payer as well as reasons behind determination.  The worker can dispute the decision if they disagree with the determination and in the meantime, the client would continue to pay the intermediary based on their determination.  The client has 45 days to respond to disagreement.

As mentioned above, the client would deduct employees National Insurance tax from the worker's fees and pay this to HMRC.  The intermediary / the workers PSC will deduct employers NI from fees received.

It is worth noting that the pay subject to income tax and NI is calculated differently compared to an employee on the payroll because it also accounts for materials which may have been incurred by the worker/intermediary.

If the rules apply, when the intermediary pays the worker, they do not need to deduct tax and NI again.  You can either pay the worker as a salary but don’t deduct tax and NI, or pay the amount as a dividend (if the worker is a shareholder of the intermediary) but this will not be recorded on workers self-assessment tax return as a dividend, but salary and tax due.

A useful tool is on the HMRC’s website to help identify the employment status of a worker:

https://www.gov.uk/guidance/check-employment-status-for-tax

If you are a medium/large organisation, we suggest that once you have identified which workers are affected, if you haven’t already done so, you then start talking to them now ahead of April 2020.

If you are either a medium/large private organisation or you an individual working via a personal service company, these rules could apply to you.  Please contact your usual Inspire contact and we would be happy to look at this and how this affects you and provide you with further advice.