Off-payroll workers in the public sector

Off-payroll workers in the public sector
Are you a public authority yourself, or do you regularly provide services to such bodies that involve the use of contractors using personal services companies? If so then you will likely be affected by new tax rules from April 2017.
 
What are the new rules?
From 6 April 2017, where the client receiving the individual’s services via an intermediary is a public authority, responsibility for determining whether IR35 applies will move from the intermediary to the public authority, agency or third party paying the intermediary. They will also be responsible for deducting and paying over any PAYE tax and NIC (including employers NIC) to HM Revenue & Customs (HMRC).
 
These new rules will apply to payments made on or after 6 April 2017 and can therefore apply to contracts entered into before that date if they straddle 5 April 2017.
 
Personal service company contracts directly with public authority
Where the personal service company contracts directly with the public authority then the public authority themselves will need to determine if the engagement falls within the scope of IR35. If this is the case then they (not the personal service company) will be responsible for the assessment of PAYE and NIC. This change only applies to PAYE and NIC and the entitlement to statutory payments, pensions obligations and employment rights will all be unaffected in falling on the personal services company themselves.
 
While HMRC have indicated there will be a new online tool available specifically tailored for determining employment status in such instances current indications are that this may not be available before April so there will be little or no additional resource available to these organisations to determine employment status in advance of the new legislation.
 
Initial feedback suggests that many public sector organisations will adopt a safety first policy and treat all workers as being caught. Additionally, many are being advised not to hire these companies directly and use agencies or other intermediaries to manage the risk.
 
Public authority contracts via third party
The public authority is still responsible for determining the employment status of such workers, but the responsibility for the PAYE and NIC in such cases passes to the agency or third party.
 
The public sector client must inform the intermediary, agency or third party with whom they have a contract whether or not the contract falls within the off-payroll rules. This conclusion can be included in the contract or separately. Where the public sector body fails to provide such notification, then a request may be made in writing that the information is made available, together with the reasons supporting their conclusion. Failure to respond to such a request within 31 days of receipt will result in the public sector body becoming responsible for accounting for PAYE.
 
We have already seen requests from public authorities to existing clients asking them to take on certain contractors and add their work to the scope of services being provided and expect this trend to continue in the next few months.
 
What should you do before April?
At risk workers should be identified in advance, the status position agreed with all parties and necessary information for payroll processing needs to be obtained. Where additional employer NIC costs arise the entity bearing these costs should be identified and fee structures discussed with all parties, both in respect of new contracts and existing ones where the work will continue past April 2017. Early discussions with related parties will avoid any last minute rush in March/April to ensure compliance with the new rules.
 
If you are affected by any of the issues raised in this Article then please contact a member of Moore Stephens Employers’ Support Team to discuss.
 
 

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