New obligations and possible extra tax payments for public sector organisations engaging contractors
Article originally published on 22 February 2017. Updated 8 March 2017 to take account of new HMRC employment status service.
In April 2017, the government is reforming the taxation arrangement for public sector ‘off-payroll’ working – i.e. engaging individuals to undertake work for a client through an intermediary; usually, a Personal Service Company (PSC).
Existing arrangements with individuals engaged through PSCs usually place no obligation on the engaging organisation to decide the employment status of that individual and neither is there any requirement to deduct tax or National Insurance contributions from payments for services purchased. Off payroll workers assess their own employment status and account for their own tax and National Insurance.
Existing arrangements for off-payroll working are set to change this year. For payments made on or after 6 April 2017, responsibility will shift to the public sector organisation, agency or other third party paying the worker’s company to:
Payments must be made if a worker:
The amount paid by the engaging organisation (or agency or other third party) can then be off-set by the worker when calculating their own employment taxes. In other words, there is no ‘double recovery’ by HMRC.
All public authorities, as defined in the Freedom of Information Act 2000, including
What is excluded from the new arrangements?
The draft provisions for the legislation implementing this reform, the Finance Bill 2017, are available here, along with draft explanatory notes.
Please click here for the government’s technical note on this development, which includes detailed guidance and worked examples.
HMRC has published a new online tool to assist workers, end-clients and employment agencies with determining employment status for the specific purpose of determining whether intermediaries legislation applies. HMRC has said that it will honour the result produced by the checker, unless it is later shown that the information provided was incorrect. The online tool can be accessed here and the results are anonymous and are not stored. However, it would be prudent to treat the results with some caution as the approach appears to be much more simplified than the detailed employment status guidance published by HMRC.
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