Off-payroll working in the public sector
6 April 2017 will see the introduction of changes to the intermediaries’ legislation, commonly referred to as the “IR35” rules, for public sector bodies which engage individuals who provide their services via, most commonly, a personal service company.
How the rules will work
Under the changes the fee payer, for example the public sector body, agency or other third party who pays the intermediary, will be required to calculate the amount of income tax and Class 1 (Primary) National Insurance due on the net fees and pay these across to HMRC via the payroll. The intermediary will still be responsible for accounting for VAT on its fees.
Under the new legislation, the fee payer will need to decide whether the off-payroll rules should apply. HMRC are currently developing a digital status tool to help with the decision-making process. However, we have yet to be provided with details as to when the tool will become available. It is hoped the tool and supporting guidance will be available soon, giving engagers time to review all of their current and proposed engagements.
Where the worker’s intermediary is subject to the new rules, it will be able to off-set the amount of income tax and Class 1 (Primary) National Insurance deducted against its own income tax and National Insurance liability in the tax year.
Who will be affected by the new rules?
The new rules will apply to:
- Public sector bodies who hire off-payroll workers;
- Anyone involved in the procurement of off-payroll workers;
- Human Resource, Payroll Departments and Finance Teams who are likely to be responsible for managing the new legislation;
- Agencies and third parties who supply workers to the public sector; and
- Workers who provide their services to public sector bodies via an intermediary.
What is a public-sector body?
For the purpose of applying the new rules, a public-sector body is based upon the definition included within the Freedom of Information Act 2000 and the Freedom of Information (Scotland) Act 2002.
Examples of organisations which will potentially be affected include:
- Government departments and their executive agencies;
- National Health Service;
- Local authorities;
- Parish councils;
- Bank of England;
- BBC; and
- Channel 4.
When will the new rules start?
The new rules will apply to payments made on or after 6 April 2017, including payments made for contracts entered into before that date.
Similarly, the new rules will also apply to any payment made on or after 6 April 2017 but the work was completed before 6 April 2017.
Responsibilities under the new rules
The responsibilities under the new rules can be allocated as follows:
The personal service company (intermediary)
- Provide the fee payer with information they need to help determine whether the off-payroll rules should apply;
- Where the off-payroll rules apply, provide the fee-payer with the information required to enable the fee payer to deduct income tax and National Insurance from the payment to be made to the intermediary; and
- Ensure compliance with HMRC in respect of both the intermediary’s and the worker’s position.
Agency, third party or public sector body where they are acting as the fee payer
- Deducting income tax and Class 1 National Insurance in respect of the engagement;
- Reporting the deductions (above bullet-point) via Real Time Information;
- Paying the relevant employers’ Class 1 National Insurance; and
- Paying the fees, after the deduction of income tax and Class 1 National Insurance, directly to the intermediary.
Public sector body
- Determine whether the off-payroll rules should apply;
- Where using an agency or third party to provide the labour, notify them whether the off-payroll rules should apply; and
- Where the public body does not reply to a written request from an agency or third party as to whether the off-payroll rules should apply within 31 days, the Public-sector body will become responsible for accounting for PAYE as if it were the fee-payer.
How haysmacintyre can help
It is important that all public-sector bodies, agencies and fee-payers review their existing contractual arrangements with intermediaries.
The new rules will have a considerable impact upon all parties connected with the provision of workers to the Public-sector.
If you should have any concerns regarding the new rules, please contact Nick Bustin, Director of Employment Tax on 020 7969 5578 or firstname.lastname@example.org, or your usual haysmacintyre contact.