The latest Chancellor (Jeremy Hunt) has rolled back the proposed repeal of the IR35/off-payroll labour reforms that had been announced by his predecessor in the September Mini-Budget.
Now that the 2017 and 2021 reforms are again approved government policy, the key message for firms who use locums and other off-payroll workers is that their compliance responsibilities remain. HMRC’s compliance checks in this area will, if anything, increase so we have set out below where you should focus your attention.
Protect your business – given ongoing worker shortages, you probably need to use locums and contractors regularly, but if you do not have robust procedures in place to identify and assess any workers using Personal Service Companies (PSCs) your firm may be at risk. Keep supporting evidence of all steps taken to demonstrate to HMRC that ‘reasonable care’ has been taken.
Self-employed contractors - you still have a risk if you engage individuals directly on a self-employed basis: check their employment status to make sure HMRC would not regard them as de facto employees.
Directors and Non-Executive Directors of companies in the business structure – make sure they are all treated as deemed employees where necessary.
Other contract workers - put robust PAYE/NIC due diligence processes in place for all your outsourced workforce, i.e. where your labour supply chain includes services provided by Umbrella Companies, Temporary labour employment agencies and other third parties. Make sure you review the contractual obligations each time where procuring contractors from a third-party supplier. Don’t assume that HMRC won’t pursue you if suppliers fail to operate PAYE/NIC when they should.
Don’t forget the other tax laws for engagers - the Agency rules and the Managed Service Company (MSC) legislation can apply. For example, where the MSC rules apply, this would mean that payments received by individuals providing their services through MSCs (PSCs based in/out of the UK) are subject to PAYE/NIC, and this debt can potentially be transferred to third parties including (in certain circumstances) you as the engager.
Don’t let one bad contractor damage your business – Alongside the IR35/off-payroll labour rules, the Criminal Finances Act 2017 introduced a corporate criminal offence for ‘failing to prevent the facilitation of tax evasion by an employee or associate’ (which includes contractors). This can apply to partnerships, but having ‘reasonable prevention procedures’ in place is a defence against the potential criminal sanctions (an unlimited fine and a conviction).
You can expect HMRC to focus on off-payroll labour obligations in any Employment Tax reviews it conducts of your practice. In our experience, in around a third of the cases we have been asked to review for ‘Off-payroll purposes’, the worker is engaged directly – often, this is because the contract should have been with the PSC but was incorrectly drafted, and the counter party is the individual worker. In these cases, the responsibility for operating PAYE remains with the engager, and will do so going forward. So get your contracts checked now.
- Where you have contracted with individuals rather than companies, can this be put right?
- Where you have contracted with individuals who claim to be self-employed, is that really their employment status for tax purposes? (It may well differ from their status for employment law purposes).
For help and advice on any employment tax issue, please contact Geraldine Browne or Renee Dawson.