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Outsourcing off-payroll working responsibilities (part 12)

Updated 15 December 2023

Read Purpose, scope and background (part 1) of these guidelines, if you have not already.

You should read these guidelines alongside existing off-payroll working guidance. They are not designed to be used in isolation, or to create an end-to-end process for organisations to comply with the rules.

Your organisation should apply the guidelines to reflect the complexity and scale of your own off-payroll working engagements. Use these guidelines to help make informed decisions, based on individual circumstances.

Your responsibilites

Your organisation can choose to outsource some of your responsibilities under the off-payroll working rules to a third party. Third parties may offer a whole service, or may only be used in certain cases, such as finely balanced decisions or disagreements.

Whether or not you choose to outsource responsibilities, your organisation will remain accountable for ensuring the rules are operated effectively. This includes:

• identifying off-payroll workers within scope of the rules
• making status determinations for any off-payroll workers within scope
• passing the status determination statement to the relevant parties
• if you are also the deemed employer, operating PAYE where appropriate

You cannot outsource accountability. Any liabilities arising from mistakes made by the third party will remain with you.

Outsourcing status decision making

If you outsource your off-payroll working processes, you should make sure that the decisions being taken are compliant with HMRC’s view of the employment status indicators.

You should ask the third party to explain its approach, and consider if it is in line with the approach set out in HMRC’s guidance. This is how HMRC will consider any status decisions you’ve made, if we open a compliance check on you.

You should ask for, and keep any documents setting out how the third party’s decision-making processes work. You need to consider whether these processes expose you to any liability.

You should be cautious of third parties that offer guarantees that their processes will ensure off-payroll workers fall outside the scope of the rules, or that result in high numbers of ‘outside IR35’ determinations (not employed for tax purposes).

These processes cannot ensure off-payroll workers are outside the rules. Whether a worker is inside or outside the rules depends on the reality of the working practices. This is likely to expose you to liabilities for any non-compliant outcomes, where workers have been incorrectly assessed as self-employed for tax purposes.

A risk-averse process that treats all workers as deemed employees (making a blanket determination) is just as unacceptable as a process that aims to find all workers self-employed for tax purposes.

You should treat the outsourced process as if it were your own. Undertake sufficient checks to make sure you are content, and sufficiently involved with the decisions being made by the third party. You need to consider:

• the ratio of employed to self-employed off-payroll workers — if the third party finds most or all of your off-payroll workers to be ‘outside’ or ‘inside’ the rules, you need to use informed judgement to be sure this is correct
• if the third party provider is making a decision based primarily on the facts you have provided, or facts provided by the individual workers
• the level of scrutiny and sign-off that your organisation applies to decisions made by third parties
• the checks or reviews you have in place, to be sure the arrangements continue to satisfy your client responsibilities, under the off-payroll working rules
• if there are any changes in the status decision making process by the third party, and if the results are consistent over time

Example

This is an example where an organisation has performed due diligence on a third party, and introduced a robust checking regime.

A large organisation (the client) contracts with a specialist tax agent for support in making off-payroll working decisions, after considering several providers. The organisation is familiar with HMRC’s view of employment status principles. They choose a provider which is reputable, and whose approach to employment status decisions is in line with HMRC’s guidance.

The organisation retains the function of identifying any off-payroll workers who need to be considered under the rules. Hiring managers are responsible for providing the details needed for the tax agent to make status decisions. They must also supply further information, as required. The tax agent uses its own tool to make employment status decisions, and shares its decisions with the organisation.

The organisation checks the tax agent’s decisions for all contracts with a value over £100,000 per year, and a random sample of lower value contracts. This is to ensure wider consistency, and to give them confidence that the relevant facts being used are correct. The organisation completes these checks using the Check Employment Status for Tax (CEST) tool, to make sure that the results the tax agent provides are consistent with HMRC’s view of employment status. When there is a different result, the client’s tax team will arrange a call with the tax agent, to agree a definitive position.

After checking as required, the organisation acknowledges that they have received and approved the third-party decision. Following the acknowledgement, the tax agent issues the status determination statement to the worker, on behalf of the organisation.

If a worker raises a disagreement with their status decision, the client organisation deals with this themselves. However, its contract with the tax agent allows it to ask their opinion, on an advisory basis.

HMRC chooses this organisation for a compliance check. This results from the organisation’s annual meeting with their Customer Compliance Manager (CCM), where the CCM established that the organisation outsourced some of their off-payroll working responsibilities. The organisation explains the systems and processes they have in place, their checking regime, as well as the tax agent’s processes to operate the rules.

HMRC asks the organisation to provide a sample of status determination statements, covering a number of roles, along with any supporting information or documents.

The organisation provides these decisions. They also include copies of their CEST tool outputs, and the supporting documents they used when answering questions in the CEST tool. These are used for checking the tax agent’s status determination decisions.

HMRC checks the outcomes, and concludes that the organisation’s systems and processes are robust, and the sample of decisions are all correct. HMRC advises the organisation of the outcome, and closes the compliance check.

The next section of the guidelines is Internal audit process — periodic reviews (part 13).