What is the background?
Employers are now faced with a myriad of tax legislation to consider before they engage any worker who they are not adding to the payroll. Depending on the method of engagement, employers can be faced with the following:
- Employment status considerations (for sole traders);
- IR35 rules (where the worker is engaged via an intermediary such as a Personal Service Company (PSC);
- Agency rules (where the worker is engaged via an Agency);
- Managed Service Company rules; and, most recently
- The proposed Umbrella Company rules.
As the impact of most of the legislation above means that any tax and NIC liability for the previous 6 years would ultimately fall on the engaging employer (where HMRC successfully challenges the employment status of the worker), it is vital that employers set up their internal processes in a way that guarantees the best chance of compliance success.
What is the issue?
HMRC have recently been building up their intelligence on the number of workers engaged by employers and how they have been engaged. The expectation is that at some point further investigations will be made of employers to ensure that they have engaged them correctly and the correct tax and NIC treatment has been adopted.
UNW have been working with various clients to review their processes and procedures to identify any risk areas and address them accordingly and there are some main areas where the main tax risks would occur in the process.
There are a number of risk areas for employers which include:
- Identification of the worker and how they are engaged;
- Issues with the onboarding process;
- Communication between different departments relevant to the engagement of the worker;
- Supply chain due diligence and what is required to satisfy “taking reasonable care”;
- Interaction with other areas of tax (e.g. the Construction Industry Scheme); and
- Payroll/Purchase ledger processing.
What do employers need to consider?
Employers need to:
- Consider and understand which workers in their organisation are paid off-payroll;
- Understand the process by which they are engaged and the background to their engagement with the business, and make improvements where necessary;
- Consider and apply the relevant parts of the legislation which apply to the engagement of their workers; and
- Report any tax and NIC to HMRC where necessary.
How can UNW help?
The above issues demonstrate only some the complexities of navigating the various off-payroll legislation and highlight the need to ensure the end-to-end process for the engagement of a worker is designed to manage risk areas that aren’t immediately obvious.
UNW’s award-winning employment tax team has extensive experience in dealing with off-payroll worker arrangements and working with clients to ensure they are compliant in this area.
Our reviews typically proceed as follows:
- Initial meeting to scope out the issue;
- Identification of all workers paid off-payroll;
- Establishing the processes for onboarding and payment of workers, including review of any contracts and documents;
- Clarification of any issues;
- Provide a report outlining the issues and provide suggestions for improvements where necessary; and
- Make a tax disclosure to HMRC where required.
