Introduction

The rollout of Off-Payroll Working to the private sector was due to be implemented on 6 April 2020, but due to the outbreak of COVID-19 it was deferred by 12 months. Incredibly, these 12 months have now passed in the blink of an eye, and the new legislation under Chapter 10 of Part 2 of ITEPA 2003 is due to come into force on 6 April 2021.

The Heading of this Chapter now becomes “Workers’ services provided through intermediary to public authority or medium or large client” and is no longer just a consideration for the public sector.

What is a Small Client?

The definition of a “Small Client” is to be taken from S 382 Companies Act 2006, in which that it must not exceed any two of the following:

Turnover	£10,200,000
Balance Sheet	£5,100,000
Employees	50

A Client which exceeds any two of these conditions will be defined as a Medium or Large Client and will be subject to the new rules.

What is Changing?

Prior to 6 April 2021, if services were provided to a client through a Personal Service Company (“PSC”), then the party responsible for determining the Worker’s employment status was:

Public Sector – The Client (the end user of the services)
Private Sector – The Intermediary (usually either an agency or the PSC itself where an agency wasn’t used).

From 6 April 2021, and with the exception of Small Clients, both Public Sector Clients and Private Clients will be responsible for deciding the Worker’s employment status. Essentially the decision making, and therefore risk, has been shifted entirely onto the end user, rather than the intermediary.

Workers providing services to Small Clients, in cases where the Off-Payroll rules apply, must have their Tax and NIC deducted by the Intermediary, as before.

Going forward, a Worker should get an Employment Status Determination from the Client and decide if the Off-Payroll rules apply. The Client must give their decision to the Worker and provide their reasons for it.

If the Worker disagrees with the Client’s decision, they can raise this at any point prior to the final payment for their services. Any disagreement must be addressed by the Client within 45 days.

Why is this Important?

Any Workers subject to the Off-Payroll rules must have their tax and NICs deducted at source and paid to HMRC by the relevant party. If this does not happen, HMRC can adjudge the relevant party as having failed to operate PAYE, and issue Regulation 80 and Section 8 Income Tax and NIC Determinations and Assessments. These may also be subject to Late Payment Penalties under Schedule 56 of Finance Act 2009.

For Clients that engage many Workers, an incorrect assessment of their employment status could result in huge tax bills, should HMRC disagree. It is therefore important to ensure that each Worker’s employment status has been properly ascertained.

A Worker’s employment status can be a difficult subject to agree upon as HMRC’s Employment Status Indicator tool on their own website can provide conflicting results, causing more confusion than assistance.

What Isn’t Changing

The law relating to whether somebody is self-employed hasn’t changed at all – and as “self-employment” has never been defined in tax legislation we are still reliant on looking at the various Control Tests (substitution, control etc.) that have been established through case law over the decades.

What this means is that if a worker was legitimately operating on a self-employed basis under a Contract for Services before, this will still be the case and they can be paid gross. So, all that has really changed is that the risk in taking that decision has been moved down the supply chain to the end user of the services – and they are understandably nervous about this.

How can we help?

It has come to our attention that some Private Sector Clients are taking the decision to implement a “blanket” approach, where all Workers are treated as employees from 6 April 2021, to avoid any potential enquiry from HMRC. This will of course come at great additional expense to both the client and the worker.

Rather than incur this expense, and through the years of experience we have in successfully handling employment status disputes with HMRC, we are able to produce a professional opinion, in Report format, on the Worker’s Employment Status, and whether, in our view, they should be subject to the new Off-Payroll rules. If we are of the view that the Worker is legitimately working on a self-employed basis and should not be subject to the Off-Payroll rules, our Report is usually enough to provide comfort and reassurance to the end user Client, and to quell any concern that HMRC may have should they enquire into the position.

If you or your clients would like to discuss this, please get in touch.