What to do if off-payroll workers are missed (part 6)
Updated 15 December 2023
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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.
Give feedback on these guidelines using the survey we’ve created.
Missed off-payroll workers
You may identify off-payroll workers who have been missed, either by you or by a third party in your labour supply chain. When you become aware of this, you should consider the worker’s status as soon as possible. If you think you have not paid the correct amount of tax, HMRC want to help you to put that right.
Read about how to make a voluntary disclosure to HMRC of any unpaid PAYE liabilities.
Example
An example of a where large-sized organisation initially failed to identify off-payroll workers. When they did identify them, they corrected their mistake.
A large-sized organisation acquired a medium-sized organisation, both of which used off-payroll workers. The large-sized organisation asked their tax agent to review the off-payroll working processes of the acquired organisation. The tax manager informed HMRC, through their Customer Compliance Manager (CCM), and agreed to share the outcome.
The report found that the medium-sized organisation had generally robust processes for operating the off-payroll working rules. However, it also identified mistakes the organisation made, when identifying its off-payroll working population for the first time.
This included not identifying established individuals working through their own intermediaries. This happened because the process was led entirely by hiring managers, rather than involving the tax manager and HR, and no cross-checking against existing computer systems had been done.
The medium-sized organisation had failed to identify that their IT manager had been working through their own personal service company. They checked the employment status of the IT manager as part of the process, and concluded that they should have been treated as a deemed employee, and subject to PAYE. They placed the IT manager on the payroll as a deemed employee. They also notified the CCM that they would make a disclosure, to account for underpaid tax, National Insurance contributions and Apprenticeship Levy in previous years.
In addition, the medium-sized organisation had failed to identify off-payroll workers supplied by an agency. The agency had been asked how their workers were engaged but had not replied. The organisation did not follow this up with the agency to confirm whether PAYE was already being operated on workers they supplied, and they continued to use that agency to provide workers.
After the acquisition, the large-sized organisation carried out due diligence checks on the agency. It found that their contracts were with the workers’ personal service companies. This meant they should have been assessed under the off-payroll working rules.
The large organisation assessed each worker’s employment status for tax, using their existing processes. It found that two workers were deemed employees, and should have been subject to PAYE for the previous 3 months.
The client organisation was responsible for PAYE arrears for this 3-month period, and made the relevant in-year adjustments to their real time information returns. It passed the status determination statements to the agency. It also explained that the agency was the deemed employer going forward, and must operate PAYE themselves.
The client organisation obtained confirmation that the agency operated PAYE on the payments made to the workers going forward.
The organisation’s tax manager kept their CCM informed throughout the process. They disclosed the tax, National Insurance contributions and Apprenticeship Levy for the IT manager, and explained what had led to the error. They also gave assurance that their existing off-payroll working systems and processes were robust enough to make sure the same type of mistake would not happen again.
HMRC considered the report and disclosures, and were content that the organisation had identified and corrected their historical mistakes, and made suitable in-year adjustments. HMRC concluded that the IT manager error was a careless inaccuracy. HMRC agreed suspension conditions with the organisation, to help avoid future inaccuracies.
Once the organisation had implemented its existing processes across the acquired business, they were able to give a final assurance that they had not found any further errors.
At the end of the suspension period, the organisation satisfied HMRC that they’d met the penalty suspension conditions. Due to this, HMRC cancelled their penalty.
The next section of the guidelines is Contracted out services (part 7).