As an employer could you see your PAYE liabilities increase due to the extension of ‘Off-payrolling’ legislation?

1 August 2019

From 6 April 2020, HMRC are changing the way Private Sector Organisations assess their workforce. In order to bring more ‘workers’ under the PAYE process, an organisation will have more responsibilities to make sure the correct tax and national insurance treatment is being considered when paying individuals or companies. Not complying with these changes could be very costly so making sure you are prepared is essential.

What is IR35?

IR35 was initially introduced as an anti-avoidance method to stop people from having unfair tax advantages. HMRC believed workers were paying less tax and national insurance by supplying their services to clients via an intermediary, such as a limited company, where they would otherwise be an employee if the intermediary was not used.

Therefore by introducing this legislation, if caught by IR35 the worker would have to pay income tax and National Insurance Contributions (NICs) as if they were employed.

The responsibility fell to the worker to assess their own status, rather than the organisation paying them.

Changes to the legislation

Due to non-compliance, HMRC changed the legislation in April 2017 to make Public Sector Organisations responsible for assessing whether their workers were caught by IR35 depending on their role and status.

If the worker was deemed to be an ‘employee’ after the review then the organisation became responsible for withholding PAYE and NICs from any affected worker at source.

After seeing increased compliance and extra tax revenue the Government has now decided to expand these regulations to the Private Sector.

What does this mean for me?

From April 2020, Private Sector Organisations who are not classified as small under the Companies Act (or who have more than 50 employees and a turnover of more than £10.2 m if non-corporate) will need to review all contracts with off-payroll workers to see whether tax and NICs should be deducted at source.

In order to assist with identifying which workers would be caught under IR35, HMRC have created a new employment status test:(Check Employment Status for Tax Tool – or CEST).

By completing the above test, HMRC’s aim is that this will give a clear understanding of the contract between the client and worker to indicate what work is to be undertaken and where the responsibility and control lies, to determine whether an employer/employee relationship exists.

Unfortunately, as all contracts are different there is no “one size fits all” approach, which is why making sure this test has been completed is proof that a company has taken reasonable care to make sure they are complying with legislation.

Failure to comply could lead to a PAYE enquiry and costly penalties.

While currently small organisations are not required to look at their engagements this might affect how they are paid so making sure you know about the changes is vitally important.

If you would like to know more about how this affects you and how to implement these changes within your organisation please do not hesitate to contact a member of our team today.