Over the last few years there have been several occasions when it has been discovered that there are full time workers working within the public sector but being treated as self-employed and benefiting from certain tax and NI advantages. The government have previously tried to tackle this, but without total success.
When he delivered his Budget last week, the Chancellor announced that the intermediaries legislation would be reformed to ensure that public sector workers could, from 6 April 2017, only be paid via the payroll or through an agency.
A Technical Note has been issued entitled Off-payroll working in the public sector: reforming the intermediaries legislation
The report confirms that “many public sector bodies are already required to seek assurance that some of their workers are paying the correct employment taxes under Government rules on off-payroll appointments in the public sector. This change will reinforce and extend this requirement across all public sector bodies and all workers engaged through a PSC.”
Interestingly, the report also includes the following – “For cases that are less clear cut, HMRC will develop a simple and straightforward digital tool to provide employers engaging an incorporated worker with a real-time HMRC view on whether or not the intermediaries rules need to be applied. HMRC will be designing these new tools and tests in consultation with stakeholders.”
Interesting proposal this because it could run alongside the existing Employment Status Indicator Tool that employers use for determining whether workers are employed or self-employed.
Also included is a list of the types of workers who could be affected by this proposed regulatory change and this includes the BBC, British Museum and Transport for London – interesting times ahead for these organisations.
The proposed new rules are:
Where the public sector organisation engages directly with the intermediary, the public sector organisation will be responsible for operating the new rules and then collecting and paying the relevant tax and NICs. Where the public sector organisation engages the worker indirectly through the third person (the agency) that third person is responsible for operating the new rules and collecting and paying the relevant tax and NICs. The public sector body will need to inform the agency that they are contracting with a public sector body within these rules. The public sector body will also be required to check that the agency operates the rules correctly. The reformed rules will not apply for workers provided through an agency or similar business where the workers are employees of the agency and not supplied through their own company.From a tax and NI perspective, the engager will need to calculate an amount of deemed employment income (and earnings for NICs). That amount is the amount of the payment made to the intermediary, less any VAT charged. It will also include a 5% deduction, reflecting the existing 5% deduction rules that apply to PSCs. Whilst this is the current assumption for how the rules will work.
The balance would then to be included for RTI purposes and returned to HMRC in the normal way. The engager should operate all expenses and other allowable deductions and allowances as if this were a normal direct employment.
Responsibility for paying secondary Class 1 employer NICs on the deemed employment income will also shift from the PSC to the relevant engager.
The actual consultation document has yet to be published.
