The government have released the draft Finance Bill today. It has been confirmed that the deadlines and determinations that were previously discussed have not changed.
They have published this legislation in draft for technical consultation before the relevant Finance Bill is laid before Parliament. The final contents of ‘Finance Bill 2019-20’ will be subject to confirmation at Budget 2019. The technical consultation will close on 5 September 2019.
This measure will have effect for contracts entered into, or payments made, on or after 6 April 2020. This is particularly important to consider if you have contractors engaged on assignments now that run up to and past 6 April 2020 as the new legislation will apply to payments made after this date.
Legislation will be introduced in Finance Bill 2019 to amend ITEPA 2003 and relevant National Insurance contributions regulations, so that where an individual works for a medium or large-sized engagers outside of the public sector, through their own PSC and falls within the rules:
- the party paying the worker’s PSC (the ‘fee-payer’) is treated as an employer for the purposes of Income Tax and Class 1 National Insurance contributions
- the amount paid to the worker’s intermediary for the worker’s services is deemed to be a payment of employment income, or of earnings for Class 1 National Insurance contributions for that worker
- the party paying the worker’s intermediary (the ‘fee-payer’) is liable for secondary Class 1 National Insurance contributions and must deduct tax and National Insurance contributions from the payments they make to the worker’s intermediary in respect of the services of the worker
- the person deemed to be the employer for tax purposes is obliged to remit payments to HMRC and to send HMRC information about the payments using Real Time Information (RTI).
- all Clients are required to issue a Status Determination Statement (SDS), however, to help avoid the situation of blanket decision making, a statement is not a status determination statement if the client fails to take reasonable care in coming to the conclusion mentioned.
- A new client-led status disagreement process is being introduced, so if the worker does not agree with the client’s decision, the client will have 45 days to review the decision and either:
- Change it, or
- Provide the worker with confirmation of their original decision and the client’s reasons for deciding that the conclusion is correct.
Small Companies Exemption
The definition of a Small Company has now been confirmed to be the same as the Companies Act – Small Companies Regime. An eligible company will now qualify as small if it meets at least two out of three of:
- turnover: not more than £10.2m
- balance sheet total: not more than £5.1m
- average number of employees: not more than 50
It is important to remember that it is the end user that is receiving the services that is considered for size and exemption, not the agency supplying the worker.
The new legislation says that for an unincorporated body (Individual / Sole Trader / Partnership etc…) they just need to have turnover that mirrors the requirement in the Companies Act, currently less than £10.2m.
Assessment is made to the financial period ending in the previous tax year. For companies, joint ventures and LLPs this will be the period ended before 6 April 2020 for the 2020/21 tax year. For unincorporated bodies running tax year basis, they will assess using their 2019/20 turnover for the 2020/21 tax year.
Summary of impacts
Up to 60,000 engager organisations outside the public sector are in scope of the reformed off-payroll working rules. The majority of large organisations, and a high proportion of medium-sized organisations, who engage off-payroll workers do so through agencies. One-off costs could include familiarisation with the changes, upskilling staff in making status determinations and determining whether the rules apply to their existing off-payroll engagements. Ongoing costs could include making status determinations for any new off-payroll engagements and maintaining a status disagreement process for off-payroll workers who seek to challenge their status determination.
Organisations that engage PSCs directly will be additionally responsible for deducting tax and National Insurance contributions and remitting it directly to HMRC for these engagements through RTI.
This measure affects approximately 20,000 agencies who provide workers to medium and large-sized organisations. They will need to operate payroll for any workers they supply who work through their own company and fall within the scope of the rules. One-off costs could include familiarisation with the changes, upskilling staff, making IT changes and implementing processes that allow them to operate payroll on the payments made to PSCs. Ongoing costs for these agencies could include accounting for and reporting the PAYE liabilities through RTI.
HMRC Compliance teams will be providing extensive support and guidance to businesses to help them implement the off-payroll working rules and ensure they apply them correctly.
What can we do to prepare?
You can view the detailed draft legislation and guidance notes at https://www.gov.uk/government/publications/rules-for-off-payroll-working-from-april-2020
HMRC have long been criticised for the failings of their CEST tool which is used to help make status determinations. Despite this, there have been no announcements regarding improvements to the tool. This said, it is still the end user that will be liable for making the correct determination and the fee payer for administering that decision. You can view this tool and input details of yourat https://www.tax.service.gov.uk/check-employment-status-for-tax/reason-for-using-tool
If you find that you or your contractors are found to be in scope of the new legislation, the main options open to you which avoid the burden and costs of making deemed employment payments are to either pay them via your in house PAYE scheme or pay them through a compliant umbrella company such as Fair Pay Services.
We are available to discuss your individual business circumstances with you with no obligation for you to enter into any arrangements with us. If you would like to arrange an initial conversation, you can contact Fair Pay Services on 0333 311 0633 (option 3) or [email protected]. We are happy to discuss by phone or alternatively are happy to meet with you at your convenience.