The HMRC off-payroll working rules apply where a worker provides services through an intermediary, such as their own personal services company. The rules are designed to make sure that workers, who would be employees if they were providing their services directly to the client, pay the same tax and National Insurance as those employed directly by the company.
Employed or self-employed?
To work out whether the rules apply, a person or organisation will make a decision about whether the worker is employed or self-employed for tax purposes. This is known as an ‘employment status determination’.
Therefore, from 6 April 2020, large and medium-sized organisations will become responsible for assessing the correct employment status of the contractors they engage to work for them. If it is determined that the rules apply, the organisation that pays the individual’s own limited company will be responsible for deducting and paying the associated employment taxes and NICs to HMRC.
The proposed changes may result in HR professionals becoming responsible for identifying whether this applies to any contractors the business works with, for example, for large or medium-sized organisations.
Paying the right tax
This is not a new tax. These changes are intended to encourage compliance with the existing rules, and to make sure those affected pay the right tax from April 2020 onwards. It is believed the reform will provide £3 billion for essential public services, including the NHS, over the next 4 years.
This reform does not prevent people from working through their own limited companies and does not affect the self-employed. Contractors who are following the existing rules correctly will feel little impact.
CEST Tool: check employment status for tax
To support organisations with this, the CEST Tool was first introduced in 2017 to help individuals and organisations decide if a worker should be treated as employed for tax purposes. It takes users through straightforward step-by-step questions.
The tool is said to provide accurate results and HMRC will stand by the result produced by the tool, provided the information input is accurate and the tool is used in accordance with the guidance. An enhanced version of the tool is due to be launched by the end of the year. For further guidance click on the links below.
- The HMRC briefing of the off-payroll working rules can be viewed here.
- The CEST tool can be accessed here.
Do you need HR and payroll support? For advice and support, call HR Solutions on 0844 324 5840 or contact us online to find out how we can help.