Off-payroll worker tool

Off-payroll worker tool in the private sector tool

This tool should be completed by the following types of organisation (including charities) that engage contractors:

• Limited Company

• Partnership

• Unincorporated association

An incorporated organisation will be considered small, and can rely on the small company exemption if, based on its financial statements for two consecutive years (see third column of tables below), it meets two or more of the following requirements:

• Annual Turnover:   Not more than £10.2 million
• Balance sheet total: Not more than £5.1 million (note: This is a gross assets test)
• Number of employees: Not more than 50 (note: a part time employee will count as 1 employee for this purpose)

An incorporated organisation will cease to be small from the start of the tax year following the filing date at which it ceases to meet the above requirements.

Please see the tables below to determine the periods you need to consider based on the filing deadline falling before 5 April 2020 for the relevant entity:

Table 1: For Limited companies and LLPs

Table 2: For Public Limited Companies

Please note that if your organisation is part of a group, in order to be considered ‘small’ the conditions listed above must be met on a consolidated basis.

If an individual shareholder of one company controls another company, it is only the turnover condition that must be met on an aggregated basis for all of the companies under common control.

An unincorporated organisation will be considered small if its annual turnover does not exceed £10.2m. The off-payroll worker rules will apply for the tax year following the calendar year in which the turnover exceeds £10.2m.

A personal service company may be a limited company that typically has a sole director, the contractor, who owns most or all of the shares. This includes non-UK companies.

An agency is typically a third party organisation where part, or all, of their service is to provide your organisation with the services of the workers. This includes non-UK agencies.

HMRC developed the CEST service to help organisations decide:

• the status of their off-payroll workers
• whether the off-payroll working rules apply

You can use the CEST tool for each engagement by clicking here

Please note that the current version of the CEST tool is useful for obtaining an overview of the workers status and to identify cases where there is a risk that HMRC may view the individual as falling within these rules. However, the approach taken in the CEST tool does not accurately reflect the full range of case law on employment status and has faced much criticism so cases identified as falling within the Off-Payroll Working rules should be investigated further before accepting the conclusion given.

Thank you for completing the Moore Kingston Smith Off-Payroll worker Tool.

From April 2020 when an organisation hires consultants, contractors or freelancers via personal service companies (‘PSC’), unless it is small, it will be responsible for deciding if tax should be deducted at source (e.g. PAYE), and, if so, deducting the tax and NIC, from the payments to that PSC, even though the individual doing the work is not your employee.

Will these changes apply to your business?

No.  You have indicated that you are considered a ‘small’ organisation. At present the changes to the off-payroll worker rules do not apply to small organisations, but please be aware that HMRC are likely to extend these rules to ‘small’ organisations in the future.

An incorporated organisation will cease to be small from the start of the tax year following the filing date at which it ceases to meet the conditions as set out in the Companies Act 2006 small companies regime.

An unincorporated organisation will be considered small if its annual turnover does not exceed £10.2m. The off-payroll worker rules will apply for the tax year following the calendar year in which the turnover exceeds £10.2m.

In periods where you benefit from the small organisation exemption, you may find that you have a competitive advantage over larger organisations as contractors are likely to prefer working for smaller organisations where they can remain ”off-payroll”.

Thank you for completing the Moore Kingston Smith Off-Payroll worker Tool.

From April 2020 when an organisation hires consultants, contractors or freelancers via personal service companies (‘PSC’), unless it is small, it will be responsible for deciding if tax should be deducted at source (e.g. PAYE), and, if so, deducting the tax and NIC, from the payments to that personal service company, even though the individual doing the work is not your employee.

Will these changes apply to your business?

No.  You have indicated that you are not considered a ‘small’ organisation, but you do not engage with contractors that work through an intermediary (for example their own PSC) either directly or through an agency. However, should you start to engage with a PSC directly or indirectly in the future the off-payroll worker rules and your compliance with them should be revisited.

Thank you for completing the Moore Kingston Smith Off-Payroll worker Tool.

Will these changes apply to your business?

Yes.  You have indicated that you are not considered a ‘small’ organisation and you engage with contractors that work through an intermediary (for example their own PSC) either directly or through an agency. Whilst you have indicated that either the HM Revenue and Customs (‘HMRC’) CEST tool has concluded the intermediaries legislation does not apply to engagements (or you have no concerns that the legislation applies to some or all engagements), there are still obligations for your business to fulfil as summarised below.

What do the changes mean for your business?

The new rules will mean that from April 2020 when engaging with individuals, consultants, contractors or freelancers who provide their services through their own company, your organisation will need to decide if tax should be deducted at source. Your determination, and the reasons for determination, for each engagement will need to be provided to the off payroll worker and, if relevant, the party your organisation and the worker directly contract with (for example, an agency).

If your organisation is paying an agency that has the contract with the individual’s PSC, then the agency must deduct tax in line with your status determination. You have indicated that the off-payroll worker rules do not apply to your engagements with contractors, therefore the agency would not expect to deduct tax.

Key Risks for you:

• Substantial increase to your compliance burden putting strain on your current organisation’s resources. Whilst the intermediaries legislation may not apply to the current engagements, there is still a need to carry out the status determination for all future contractors providing services directly, or indirectly through an agency.
• Getting the determination wrong. The approach taken in the HMRC CEST tool does not currently accurately reflect the full range of case law on employment status and has faced much criticism.
• Where failure of obligations under these rules arise anywhere in the supply chain HMRC could potentially seek payment for tax and NIC from you as client even where you are not primarily responsible for deducting PAYE and NIC.
• The cost to your organisation of using a contractor where the intermediaries legislation applies has increased by up to 14.3% (current employer’s NIC charge and apprenticeship levy).
• Where the intermediaries legislation applies for future engagements, be prepared for the contractors you use to prefer working for smaller businesses who will not deduct tax at source from their invoices.

How Moore Kingston Smith can help you?

Moore Kingston Smith offer an off-payroll worker solution drawing on our experience with the existing public sector regime and dealing with HM Revenue & Customs on employment status issues generally.  For more information on this and a free off-payroll worker risk and opportunities meeting, or for more information, please complete the below form:

Thank you for completing the Moore Kingston Smith Off-Payroll worker Tool.

Will these changes apply to your organisation?

Yes.  You have indicated that you are not considered a ‘small’ organisation and you engage with contractors that work through an intermediary (for example their own PSC) either directly or through an agency. In addition, either the HM Revenue and Customs (‘HMRC’) CEST tool has concluded the intermediaries legislation applies to engagements or you have other concerns the legislation applies to some or all engagements.

What do the changes mean for your business?

The new rules will mean that from April 2020 when engaging with individuals, consultants, contractors or freelancers who provide their services through their own company, your organisation will need to decide if tax should be deducted at source. Your determination, and the reasons for determination, for each engagement will need to be provided to the off payroll worker and, if relevant, the party your organisation and the worker directly contract with (for example, an agency).

If your organisation is paying an agency that has the contract with the individual’s PSC, then the agency would be responsible for the deduction of these payroll taxes but you, as the end user of the services, must tell the agency whether the off-payroll working rules apply.

Key Risks for you:

• Substantial increase to your compliance burden putting strain on your current organisation’s resource in teams dealing with HR, payroll and supplier invoices..
• Getting the determination wrong. The approach taken in the HMRC CEST tool does not currently accurately reflect the full range of case law on employment status and has faced much criticism.
• Where failure of obligations under these rules arise anywhere in the supply chain HMRC could potentially seek payment for tax and NIC from you as client even where you are not primarily responsible for deducting PAYE and NIC.
• The cost to your organisation of using a contractor where the intermediaries legislation applies has increased by up to 14.3% (current employer’s NIC charge and apprenticeship levy).
• Where the intermediaries legislation applies for future engagements, be prepared for the contractors you use to prefer working for smaller businesses who will not deduct tax at source from their invoices.

How Moore Kingston Smith can help you?

Moore Kingston Smith offer an off-payroll worker solution drawing on our experience with the existing public sector regime and dealing with HM Revenue & Customs on employment status issues generally.  For more information on this, and a free off-payroll worker risk and opportunities meeting, or for more information, please complete the below form:

Please enter the following information to request a free risk and opportunities consultation: