Off Payroll Working Proposals to go ahead from April

The Chancellor announced in the Autumn Statement that the Off-payroll Working proposals designed to deal with non-compliance with the IR35 tax rules will go ahead from 6 April 2017. On 5 December HMRC released further details about the proposals, including a couple of significant changes from the original proposals in the consultation. The detailed information from HMRC can be found in this Policy Paper, Technical Note, and the response to the consultation.

Firstly, HMRC confirmed that the definition of a public sector body will taken from the Freedom of Information Act - this means that universities will definitely be caught by the changes. Consequently, universities should start preparing for these changes as soon as possible, by liaising between all the affected departments to determine how to comply effectively (e.g. procurement, payroll, finance, accounts payable, HR and legal).

The significant changes from the original proposals are:

1. If a public body is using an agency to engage the Personal Service Company (PSC), then HMRC originally proposed that all responsibility for determining the nature of the contract and the payment of PAYE and NIC lay with the agency. This has changed.
1. HMRC have responded to feedback in the consultation that the agency won’t have enough detail about the  nature of the engagement to make that decision by passing the responsibility to make this decision onto the engager.
2. The liability to pay the PAYE and NIC remains with the agency, unless the engager does not inform the agency of the status of the engagement, in which case the agency can make a request to the engager and if there is no response within 31 days, the liability to pay the PAYE and NIC passes to the engager.

2. The 5% allowance that was to be deducted from the invoice amount before calculating PAYE and NIC liabilities has been removed. Points to note about this include:
1. This does make it simpler to undertake the calculation but also means that HMRC receive more PAYE and NIC;
2. It is still possible to deduct direct costs of materials and expenses, as long as these are well evidenced (but this obviously complicated the calculation even more);
3. The 5% deduction is still allowed for PSCs working in the private sector who operate the IR35 rules themselves, increasing concerns about losing contractors to the private sector.

It is worth bearing in mind when considering how to identify the PSCs among your suppliers that these can include partnerships as well as limited companies, which will be even harder to identify as there is no publicly available information about them as there is for companies.

We will be providing more information on these new rules shortly.