Off-payroll working in the public sector
New rules for how off-payroll labour is engaged by public authorities came into effect from April 6, 2017.
The new rules affect individual workers who provide their personal services through an intermediary personal service company (PSC) to a public authority organisation. The definition of public authorities is wide reaching and includes government departments, local authorities, the NHS, universities, colleges, academies as well as companies controlled by public organisations.
Previously it was the responsibility of the individual worker to assess whether or not their services could be deemed to be employment, and whether PAYE and NIC should apply in their PSC under the intermediary rules.
Under the new rules, for all direct engagements between public authorities and PSCs, if the authority decides the engagement falls within the intermediaries legislation, income tax and NICs will need to be withheld by the public authority (as the “fee payer”) at source through the payroll, and relevant payments made to HMRC through RTI. The public authority will also need to account for employer’s NICs and any apprenticeship levy costs arising. If the engagement falls outside the legislation, the public authority can simply pay the PSC or intermediary gross.
Where a public authority engages a PSC worker through an intermediary agency, it will need to consider whether the intermediary legislation applies and notify the agency accordingly. The agency will then become the ‘fee payer’ and it must fulfil the tax and NIC withholding and reporting requirements.
The new rules affect all payments to a PSC (whether direct or through an intermediary agent) made on or after April 6, 2017, even if the services were provided prior to this.
HMRC has published an employment status online tool to help public authorities assess whether or not a worker should be deemed to be an employee. While this tool is a source of assistance in considering if the new rules apply, employment status is a notoriously difficult area of tax law and public authorities will have to exercise great care when using it. HMRC has set up an employment status intermediary’s team that will monitor compliance of these new rules.
What do public authorities therefore need to do?
• Ensure you have read the guidance available from HMRC and are familiar with how the new legislation applies, including the various elements of the employment status tests.
• Review all existing contracts for services with PSC’s and intermediary agencies.
• Identify those workers providing services through a PSC or intermediary to identify if any are affected by the new rules.
• Ensure your payroll systems and procedures are updated to deal with the engaging, withholding and reporting requirements.
• Ensure you have good communication channels with the PSC’s and agencies so you can communicate the outcome of any employment status reviews to them efficiently and clearly.
• Consider the cost implications for your organisation moving forward if affected by the new rules, including any impact on your liability for the apprenticeship level as a result of the increased payroll costs.
