Off-payroll working in the public sector: reform for fee-payers
Changes to off-payroll working rules means real time reporting for fee-payers from April 2017.
Reforms to off-payroll working in the public sector from 6 April 2017 mean a change to the way fee-payers (public authority, agency or other third party) pay for services from individuals engaged through an intermediary.
An intermediary can be a personal service company (PSC), partnership or other individual. Most intermediaries providing a worker’s services in this way will be PSCs.
This guidance refers to PSCs but you should also consider partnerships and other individuals acting as intermediaries where that is the case.
Under these changes, the end-client (the public authority) will decide whether the rules should apply. The Employment Status Service, an online tool expected to be made available by the end of February 2017, will help people make that decision.
The fee-payer is the party who is paying the PSC for the services provided by the individual worker. If the off-payroll working rules apply, a PSC worker has a deemed employment with the fee-payer.
Requirement to make deductions
From 6 April 2017, where it has been determined that the off-payroll working rules apply, contractual payments made to the PSC must be made net of employment tax and Class 1 primary National Insurance contributions (NICs).
As the fee-payer, you are required to calculate and report the amounts deemed paid to the worker, and the Income Tax and primary Class 1 NICs liabilities paid to HMRC. This should be done in real time, on or before the date of deemed payment to the worker, on a Full Payment Submission (FPS), in the same way as for your employees. The liabilities must be paid over to HMRC by the 19th or 22nd calendar day of the following month.
You must also pay, secondary Class 1 NICs due in respect of these engagements, and report them to HMRC.
There is no requirement to add PSC workers to your existing payroll(s), although you can do this if you wish. If the payments are not reported under your existing PAYE scheme(s), then you will have to open a new one. You should keep a record of the deemed earnings, Income Tax and NICs deducted on a deductions working sheet.
The requirements are largely the same as the information reported for your existing employees. For existing contracts that become subject to the changes on 6 April 2017 you might need to obtain some additional information from these workers, to complete a payroll submission.
You can find the information (data fields) that you will have to report on an FPS, in respect of engagements subject to the off-payroll working provisions.
When the worker starts, or when changes in circumstances mean that the rules should be applied you will need to send a starter declaration to HMRC.
You should use Starter declaration C for workers engaged through their PSC. The worker will have a primary employment with their own company so the services they provide to you are treated as a secondary employment.
Starter declaration C means you should operate tax code BR and deduct tax at basic rate.
There is no requirement for the worker to provide you with a P45 from a previous employment.
The PSC worker and HMRC will need information to help differentiate between the worker’s primary and secondary employments.
To support that, you should assign a unique worker ID for the engagement, using the Payroll ID data fields. It is up to you how you create a unique worker ID, using your own payroll software or other HR arrangements may help you do so.
As the fee-payer, you will be liable for paying Class 1 NICs arising from the deemed earnings of the PSC worker. This means that those payments will be included in your annual pay bill and be relevant for apprenticeship levy purposes. If your annual pay bill is £3 million or over, you will have a liability to pay the apprenticeship levy.
Office-holder status for NICs
The vast majority of PSC workers will be directors, which makes them office holders in their own limited companies. That does not necessarily mean they are office-holders in your organisation.
You should only indicate director’s status for NICs where the contract with the PSC means the worker is an office holder in your organisation.
End of the contract
At the end of the contract, you will need to report the date of leaving and any payments made to the PSC after that date. You should provide the worker with a P45 at the end of the contract.
There are a number of reporting fields that are not relevant for workers engaged through their own companies:
- Student Loan deductions – the worker will account for student loan obligations in their own tax returns or company payrolls
- statutory payments – as the worker is not one of your employees, they are not entitled to statutory payments from you. The entitlement to statutory payments comes through their primary employment with their own company
- pension deductions – the worker is not subject to auto-enrolment into your workplace pension
Published: 3 February 2017
From: HM Revenue & Customs