Engaging workers “off-payroll” - paying gross via invoices rather than as an employee under payroll deductions - is arguably the main area of tax risk for any business involved in such arrangements.
The UK Government has long held the belief that many off-payroll engagements for contractors and consultants are disguised employments, with businesses and individuals avoiding paying millions of pounds in tax and NIC deductions each year. This has led to much stricter legislative provisions in recent years to try and reduce the perceived tax gap, coupled with extensive HMRC compliance activities to police the legislation and to bring non-compliant businesses to account.
It is a very complex area of tax law, which can also be subjective in many cases, and is heavily reliant on case law precedent to determine the tax status of a worker which can, and does, vary from case to case. This uncertainty and inconsistency can make it difficult for employers to fully understand and establish the correct tax treatment.
There are multiple parts of tax legislation that can apply to bring the arrangements within a charge to PAYE and NIC, and the interaction of these parts of law can further complicate the tax technical position.
Some of the key statutory provisions in this area include:
- General employment status rules
- Off-payroll worker legislation (commonly referred to as “IR35”)
- Agency tax rules
- Managed Service Company rules
- Construction Industry Scheme - visit scheme
- Host employer rules
- Onshore/offshore employment intermediary rules
- Office holder rules
Armstrong Watson’s Employment Tax team has been at the forefront of advising employer clients on these areas for many years, including from the very start of IR35 legislation in April 2000. Ways in which we can support clients include:
- Advice in relation to specific engagements of contractors/consultants
- Support on end-to-end processes to comply with the IR35 rules, including:
- Supplier and supply chain review and communications
- Consideration of ‘contracted-out’ (outsourced) rules to identify end client
- IR35 assessments and issue of Status Determination Statements
- IR35 appeals in line with statutory requirements
- Ongoing review processes
- Operational aspects, such as payroll and HMRC reporting
- Advice on officeholder engagements (directors, board members, trustees)
- Application of the Agency and Managed Service Company rules where there is an employment agency-type organisation involved in the supply chain
- Advice on the interaction of Construction Industry Scheme and employment status rules for construction work
- HMRC disclosures on employment status/IR35
- HMRC investigations on employment status/IR35
- Staff training
- Internal processes and checklists
For all off-payroll related enquiries or support, please contact Brian Rudkin
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