Off Payroll Working from April 2021

From April 2021, new rules apply to businesses who engage off-payroll workers.

In many cases, they will be required to deduct PAYE/NIC.

Who is Affected?

The new rules apply when a business engages a worker who supplies his personal services through an intermediary, such as a personal service company (PSC), where the worker would be treated as employed if he was engaged directly. It is the responsibility of the business to decide whether the worker would be treated as employed under these rules.

Public sector bodies are already caught by similar rules.

The changes were originally planned to take effect from 6 April 2020, but following the outbreak of Coronavirus, they were deferred to April 2021.

Small Company Exception

Small companies are exempt from the new rules. A small company is one which can satisfy two of the following three conditions:

  • Turnover for the year not more £10.2m
  • Total assets on the balance sheet not more than £5.1m
  • Average number of employees in the year not more than 50

Where the company is part of a group or there are companies under the same control, these companies must be taken into account. Unincorporated businesses are treated as small if their turnover is less than £10.2 million.

New Requirements

From 6 April 2021, businesses will have the following responsibilities in respect of off-payroll workers who provide personal services:

  • They must determine the status of such workers, categorising them for this purpose only as “employed” or “self-employed.”
  • They must provide a written statement of the status determination and the reasons for reaching it to the company to whom it makes payments, and to the worker himself;
  • They must deduct PAYE/NIC from the payment to the PSC, and pay employer’s NIC. The PAYE and NIC must be accounted for to HMRC via the Real Time Information (RTI) service.
  • They must also operate an appeal process, to enable the worker to dispute the status determination and to respond within 45 days. This process does not involve HMRC.

Determining a Worker’s Status for Tax Purposes

It is not a straightforward matter to determine employment / self-employment status, as is evident from a long string of cases that have reached the courts over the last 50 years, and there are a myriad of factors to take into account.

To assist with this, HMRC has provided an on-line tool called CEST – Check Employee Status Tool – which can be found on by an on-line search for “HMRC CEST.”

The advantage of using CEST is that HMRC will stand by its conclusions, provided the user has entered the correct information. However, in some borderline cases, the CEST tool will not determine the status either way. In such cases, a judgement will be required to be made or professional advice will need to be taken

It should be noted that determining the worker’s status as “employed” for tax purposes does not mean that he is actually employed by the end-client. The worker’s actual, contractual position is unchanged.

Agencies

In some cases, businesses will pay an agency, who will in turn pay the PSC. The business must then pass the status determination to the agency as well as to the worker. Where the engaging business determines the worker’s status as “employed,” the agency will be responsible for the PAYE/NIC. The agency will also bear the cost of employer’s NIC. However, they will have no say in the determination of the worker’s status.

Non-resident Agencies

An agency that is not resident in the UK and has no place of business in the UK is not required to operate PAYE/NIC. In such cases, the engaging business may become liable to operate PAYE/NIC.

Non-compliant Agencies

Where an agency fails to account for PAYE/NIC, HMRC will have powers to seek payment of that liability from the engaging business. The relevant legislation has not been published, but thus far HMRC have stated that it would not propose to use these powers where the engaging business has taken reasonable care in applying the rules, or where the non-payment of PAYE/NIC was due to a genuine business failure. Clearly, HMRC is expecting businesses to carry out some degree of due diligence where there is a chain of intermediaries, to ensure that PAYE/NIC is being operated where appropriate.

Further Implications for PSCs

Where a worker’s status is determined as “employed” for tax purposes, the PSC will be unable to make tax-free travelling and subsistence payments to the worker, or to pay tax efficient dividends to the worker and his/her spouse. Off-payroll workers are therefore likely to be financially worse-off, and may seek to increase their charges.

Action Required

Companies who do not qualify as “small” should consider whether they have any workers who provide personal services, and are not on the payroll. If such individuals are expected to be paid after 6 April 2021, it will be necessary to determine their status for tax purposes. This is the case whether or not an agency is used.

Where a worker’s status is deemed to be “employed” for tax purposes, consideration should be given to reviewing the contractual arrangements, and entering into a dialogue with the worker to agree mutually acceptable terms.

Companies should ensure that copies of the status decision and the reasons for it are communicated before 6 April 2021, and that they retain copies. The reasons for the status decision may be in the form of the printout from the CEST tool where it is used.

Where agencies are used, businesses should satisfy themselves that they comply with the new rules. Where agencies fail to account for PAYE/NIC, liabilities can fall back on the engaging business.

Concluding note

HMRC expects to raise £1.3 billion from the introduction of these new rules. Clearly, it is the view of HMRC that there are a huge number of PSCs who will become subject to deduction of PAYE and NIC.

It should also be stressed that there are no planned changes to the rules for paying freelance workers who do not operate via PSCs. Businesses should continue to check whether their status for tax purposes is employed or self employed.

Chancellor’s ‘Winter Economy Plan’ aims to prevent massive job losses

Rishi Sunak has scrapped his November budget because in his own words “now is not the right time to outline long term plans” and “what people want to see is focused on the here and now”.  Instead he has today announced details of his ‘Winter Economy Plan’.

In his statement today, 24 September 2020, the Chancellor announced a support package to save jobs and help prevent the economy worsening.

Wage subsidies for part-time workers

The Furlough scheme will not be extended past 31 October 2020.  It will instead, be replaced by the Jobs Support Scheme, modelled on one in Germany, in which taxpayers subsidise the wages of workers returning to work part time after being furloughed.  The Chancellor said that employees will have to work for at least a third of their normal hours to quality for the new scheme, which begins on 1 November 2020.

VAT cut extension for hospitality and tourism

As widely predicted, the VAT cut for the hard hit hospitality and tourism sectors has now been extended to 31 March 2021 and the rate will remain at the reduced rate of 5% until that date.

Pay as you grow

The repayment terms on Coronavirus loan schemes for hard-hit businesses have increased from 6 to 10 years to reduce monthly repayments.

Commenting on the Chancellor’s speech Danny Houghton, Business Development Partner at MHA Moore and Smalley said “Today’s announcements will be welcome news to employers and workers alike, however, there was no mention of when the delayed Budget might occur, so we are yet to find out about longer term spending and borrowing plans. This delay will give business a little extra time to plan ahead of any future tax reforms.”

Contact Us

For further information please get in touch with your MHA Moore and Smalley contact or, alternatively contact us here.

The Kickstart Scheme: how does it work?

Funding for employers and new jobs for young people

 

The Department of Work and Pensions (DWP) has launched the £2 billion Kickstart Scheme, designed to create fully subsidised new job placements lasting 6 months for young people across the country who are currently on Universal Credit and at risk of long-term unemployment.

The placements are open to those aged 16-24. They will be available across a range of different sectors in England, Scotland and Wales. The first placements are likely to be available from November.

Employers will receive funding for 100% of the relevant National Minimum Wage for 25 hours a week, plus associated employer National Insurance contributions and employer minimum auto-enrolment pension contributions.

There will also be extra funding to support young people to build their experience and help them move into sustained employment after they have completed their Kickstart funded job.

How to apply:

If you are an employer looking to create jobs placements for young people, you can apply here for funding as part of the scheme.

You can submit your application online. If you are applying for 30 or more job placements, you can apply directly.

If you are applying for less than 30 job placements, you must apply through a representative of a group of employers. They can submit an application on your behalf, using other employers to create 30 or more job placements in one application.

Application requirements:

  • Your Companies House reference number or Charity Commission number
  • Organisation address and contact details
  • Details of the job placements and their location
  • Supporting information to show that the job placements are new jobs and meet the Kickstart Scheme criteria
  • Information about the support the organisation can give to develop employability skills of young people

 What happens next:

Once your application has been submitted, it will be reviewed to check it meets the requirements of the Kickstart Scheme. It will then go to a panel for consideration. This is not a competitive process, but Kickstart will only provide funding when the job placements meet the criteria.

DWP aims to respond to applications within one month.

What happens if your application is accepted:

If your application meets the requirements of the scheme, you will receive a letter with a grant agreement. This agreement will include what your company has agreed to provide, and how much funding you will receive from the Kickstart Scheme.

 Contact us

Please get in touch with Adam Parton, Partner if you need support, or alternatively contact us here.

This update originally appeared on the website of our colleagues at MHA Carpenter Box

Coronavirus Statutory Sick Pay Rebate Scheme

Employers can make claims through the Coronavirus Statutory Sick Pay Rebate Scheme via an online service launched on the 26 May.

The online service is for small and medium-sized employers to recover Statutory Sick Pay (SSP) payments they have made to their employees.

Eligibility

Employers are eligible if they have a
PAYE payroll scheme that was created and started before 28 February
2020
 and they had fewer than 250 employees before the
same date.

The repayment will cover up to 2
weeks of SSP and is payable if an employee is unable to work because they:

  • have
    Coronavirus; or
  • are
    self-isolating and unable to work from home; or
  • are
    shielding because they have been advised that they are at high risk of
    severe illness from Coronavirus

You can check if your business can claim back Statutory Sick Pay paid to
employees due to Coronavirus (COVID-19).

Making a claim

Employers will be able to make their
claims through the online service.

This means they will receive
repayments at the relevant rate of SSP that they have paid to current or former
employees for eligible periods of sickness starting on or after 13 March 2020.

To prepare to make their claim,
employers should keep records of all the SSP payments that they wish to claim
from HMRC.

Further information

The current rate of SSP is £95.85 per
week (before 5 April the rate was £94.25). Employers can choose to go further
and pay more than the statutory minimum. This is known as occupational or
contractual sick pay.

Where an employer pays more than the
current rate of SSP in sick pay, they will only be able to reclaim the SSP
rate.

The scheme covers all types of
employment contracts, including:

  • full-time
    employees
  • part-time
    employees
  • employees
    on agency contracts
  • employees
    on flexible or zero-hour contracts

Note: Other SSP eligibility criteria
apply.

Connected companies and charities can
also use the scheme if their total combined number of PAYE employees is fewer
than 250 on or before 28 February 2020. Employees do not have to provide a
doctor’s fit note for their employer to make a claim under the scheme.

Employers can furlough their
employees who have been advised to shield in line with public health guidance
and are unable to work from home, under the Coronavirus Job Retention Scheme. Once furloughed,
the employee should no longer receive SSP and would be classified as a
furloughed employee.

Where an employee has been notified
to shield and has not been furloughed, the rebate will compensate up to 2 weeks
of SSP from 16 April 2020.

For more information, or if you need
assistance with a claim, please get in touch with our payroll department
on 01772 821021.

This article was written by our colleagues at MHA Carpenter Box.

Areas of concern with regards to payroll processes

The individual who normally processes payroll is unavailable

Actions:

  • Document who currently has the capability to process payroll
  • Consider training additional staff in the payroll process
  • Document the current payroll process and outline actions for staff to follow

Any software/IT that is required for payroll is unable to be accessed remotely

Actions:

  • Review what access is required to run the payroll and test run outside of the normal working environment
  • If measures to allow remote access are not available, could the current payroll process be amended to remove the requirement for these systems?

The individual who makes the final payment is unavailable

Actions:

  • Document who is currently authorised and able to make payment
  • Consider granting access to additional staff to complete this payment if required

The payment method is currently inaccessible

Actions:

  • Review the access requirements to make payments to ensure that this can be performed remotely if necessary
  • Ensure that a back-up payment method is identified and available if required e.g. BACS/bank transfer

Unable to calculate correct payroll amounts

Actions:

  • Ensure that the previous month’s payroll analysis and supporting schedules are available to all who may need it
  • Ensure that current staff records including contracted hours and salary are up to date and documented for all that may need it
  • Ensure that any additional rates including overtime, expenses, commission rates and bonuses are all documented and available to those that may need it

Payroll cannot be processed and tax cannot be calculated or declared to HMRC

Actions:

  • Continue to pay staff directly. If the amount to pay staff cannot be determined, consider alternative measures to calculate pay including:
    • 1. Pay the same as last month
    • 2. Pay staff’s basic salaries only (no overtime/bonus etc.)
    • 3. Pay all staff a flat amount
  • Failure to declare and pay tax to HMRC may result in fines. If this is the case then applications may be made to HMRC’s Time To Pay service to appeal against late tax payments due to disruption caused by COVID-19

If you would like further information or advice on the topics covered in this blog then please contact Tracey Simpson, Payroll Services Director on 01772 821021 or email tracey.simpson@mooreandsmalley.co.uk.

To read our update on the Coronavirus Job Retention Scheme and how payroll is calculated, including information about SSP, please click here.

Statutory Sick Pay advice for employers

In response to the coronavirus outbreak, new Regulations known as The Statutory Sick Pay (General) (Coronavirus Amendment) Regulations 2000 came into force on 13 March 2020.  These will remain in force for a period of 8 months. The government will bring forward legislation to allow small and medium-sized businesses (SMEs) and employers to reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19. The eligibility criteria for the scheme will be as follows:

  1. This refund will cover up to two weeks’ SSP per eligible employee who has been off work because of COVID-19.
  2. Employers with fewer than 250 employees will be eligible. The size of an employer will be determined by the number of people they employed as of 28 February 2020.
  3. Employers will be able to reclaim expenditure for any employee who has claimed SSP (according to the new eligibility criteria) as a result of COVID-19.
  4. Employers should maintain records of staff absences, but employees will not need to provide a GP fit note.
  5. The eligible period for the scheme will commence the day after the regulations on the extension of Statutory Sick Pay to self-isolators comes into force.
  6. The government will work with employers over the coming months to set up the repayment mechanism for employers as soon as possible. Existing systems are not designed to facilitate employer refunds for SSP.

Please contact our payroll team for guidance on the above.

For more information on Covid-19 please make sure to check out our Covid-19 hub for coronavirus guidance and planning below:

IR35 reforms delayed

Chief Secretary to the Treasury, Steve Barclay, announced on 17 March 2020  that the IR35 tax reforms will be deferred due to Coronavirus.  The statement came less than a week after the controversial measures were confirmed in the Budget.

Mr Barclay confirmed that the changes, which will clamp down on tax avoidance by targeting contractors for companies who are, in practice, providing the same service as employees, would not go ahead in April as previously expected.

Instead, the measures will come into effect on 6 April 2021.

This will be very good news for potentially affected businesses who have enough to focus on due to the impact of Coronavirus. However, it may be a blow to a lot of businesses who had been working very hard to prepare for the changes and have made adjustments to contracts, processes, procedures, policies and infrastructure to be ready for the previously confirmed start date just days away on 6 April 2020.

We are still here to assist those businesses who still want to be proactive in their readiness for the (delayed) implementation of IR35 in the private sector, but we imagine for most it will be a sigh of relief and some welcome breathing space to look at this radical reform later this year after the country has recovered.

We recommend that, as far as possible, businesses continue to plan for the introduction as these rules are still coming however the government is rightly recognising that business has enough to deal with in the current environment.

What now?

HMRC continue to view the introduction of IR35 as key to addressing a perceived mismatch between the tax paid by contractors compared to employees.  They have not changed their view that the changes in their current form will impact roughly 170,000 individuals working through their own company, who would be employed if engaged directly, as well as up to 60,000 organisations that use workers employed by a personal service company (PSC), and raise up to £1.3bn or more in extra tax and NIC, though this is likely to be pushed out to 2021/22 – 2024/25.

There is more time to prepare for these changes to off-payroll working rules, which now come in from April 2021, and will mean checking whether contractors need to have income tax and national insurance contributions deductions taken, shifting the responsibility for conducting such checks from the contractor to the organisation using their services.

In addition, the jury is still out on the review of the Check Employment Status Tool (CEST) which has been given a vote of ‘no confidence’ by the profession. Nevertheless, it will be still an important tool for those involved with IR35.

Organisations can’t take a blanket approach to deciding whether a worker should be treated as an employee for tax purposes, as they need to provide reasons for each determination.

Next steps for IR35 compliance

1. Check if you are caught under the definition of ‘Small’ or not.

A ‘Small’ business is defined by reference to the Companies Act as having two out of three of:

a. A turnover of less than £10.2m
b. A balance sheet of less than £5.1m
c. Less than 50 employees

The new legislation says that for an unincorporated body they just need to have turnover that mirrors the requirement in the Companies Act, currently less than £10.2m

2. Follow the process below

Full details regarding the planned reforms are set out on our fact sheet.

Contact us

If you have any questions regarding the IR35 reforms, please do not hesitate to get in touch.

For more information on Covid-19 please make sure to check out our Covid-19 Hub for coronavirus guidance and planning below:


National Minimum Wage and National Living Wage

On the 1st April 2020 the new rates of National Minimum Wage and National Living wage (for over 25-year olds) will come into effect.

Year 25 and over 21 to 24 18 to 20 Under 18 Apprentice
April 2019 (current rate) £8.21 £7.70 £6.15 £4.35 £3.90
April 2020 £8.72 £8.20 £6.45 £4.55 £4.15

The higher rate starts to apply from the next ‘pay reference period’ after the increase. This means someone’s pay might not go up straight away. The ‘pay reference period’ is the period of time the pay covers. For example:

  • if paid daily, the pay reference period is 1 day
  • if paid weekly, the pay reference period is 1 week
  • if paid monthly, the pay reference period is 1 month

The pay reference period cannot be longer than a month.

Apprentices

Apprentices are entitled to the apprentice rate if they’re either aged under 19, or aged 19 or over and in the first year of their apprenticeship.

Apprentices are entitled to the minimum wage for their age if they are aged 19 or over and have completed the first year of their apprenticeship.

It is a criminal offence to not pay an employee the correct National Living wage or National Minimum wage. If an employer is found to be in breach, then they will need to pay any arrears due to an employee immediately. They will also be fined.

It is the employer’s responsibility to ensure that records are kept for 3 years that prove they are paying the correct National Minimum Wage and National Living Wage rates.

For any questions regarding the above, please do not hesitate to get in touch with Payroll Compliance Services Director, Tracey Simpson.