ESM10015 - off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: client-led status disagreement process
Section 61T Chapter 10, Part 2 ITEPA 2003
Regulation 20 Social Security Contributions (Intermediaries) Regulations 2000
This guidance is for client organisations only. The corresponding guidance on the client-led status disagreement process for workers and deemed employers can be found at ESM10015A.
The legislation requires clients to deal with disagreements of Status Determination Statements (SDS) by workers and deemed employers within 45 calendar days. An agency who is not the deemed employer (see ESM10017) within a contractual chain does not have the right to use the client-led disagreement process.
As a minimum the legislation requires the client to:
consider the worker’s and/or the deemed employer’s representations. These representations could be made verbally or in writing,
respond to the worker and/or the deemed employer’s representations within 45 calendar days, beginning with the day the representations are received, not from when the SDS was issued,
inform:
the worker and/or deemed employer that it has considered their representations and decided that the SDS issued was correct and provide reasons, or
the worker and/or deemed employer it has considered representations and decided the SDS is incorrect and is withdrawn, providing a new SDS and stating the date from which it applies (see Corrections following a new SDS)
take reasonable care in making any new SDS and ensure it contains the reasons for reaching that conclusion (see ESM10013).
Handling disputes
It is up to the client to decide the appropriate people within the organisation to deal with disagreements. The client could put in place a process to ensure the right person within the organisation receives any representations from workers, for example, by asking that representations are made to the person who issued the SDS to the worker.
If the client does not comply with the minimum requirements of the status disagreement process, the responsibility for the deduction of tax and NICs, and payment of apprenticeship levy, and paying these to HMRC will transfer to the client for further payments where due. This will be the case regardless of whether the client took reasonable care in making its determination. However, this is subject to the fraudulent document provisions in section 61V Chapter 10, Part 2 ITEPA 2003 and Regulation 22 Social Security Contributions (Intermediaries) Regulations 2000 (see ESM10023).
The worker’s or deemed employer’s representations should contain the reasons why they disagree, so the client has sufficient information to consider the representations. A client will be able to stand by their SDS if a dispute is made without any reasons or new information, but must consider any subsequent disagreements received that contain these and are supported with reasons or new information.
There is no cap on how many times a worker or deemed employer can raise a dispute and representations can be made at any time. However, the client is only required to respond to representations made before the final chain payment is made in relation to that engagement. The client is not obliged to respond to representations made outside of this timeframe as there are no further chain payments on which the client could operate PAYE.
If the client did not issue a SDS, the worker or deemed employer can still make representations. However, the normal 45-day time limit will not apply. The client will be responsible for any deductions of tax and NICs and payment of apprenticeship levy if the engagement is one to which the rules apply so HMRC recommends the client does consider any representations received.
Where the SDS conclusion states that the rules apply, the deemed employer remains responsible for the deduction of tax and NICs and payment of apprenticeship levy throughout the status disagreement process. This remains the case unless, and until, the client decides the worker does not fall under the rules. Equally, if the SDS conclusion states that the rules do not apply, this can be followed unless, and until, the client decides the worker falls within the rules.
Corrections following a new SDS
A worker or deemed employer could raise a disagreement because they believe that either the client’s conclusion is incorrect for the whole period of the engagement, or because they believe the contractual terms and/or working practices have changed over time. If the client does issue a new SDS because it has changed it's conclusion, it is required to stipulate the point in time the new SDS applies from.
Where the client-led status disagreement process leads to a different conclusion, corrections should be made, in the first instance, through payroll. This can be done within the Full Payment Submission (FPS) in the deemed employer’s next reporting period or in a corrective FPS. This FPS needs to include the correct year to date figures for the worker involved. For example, where a worker was deemed to be inside the rules so deductions were made but that conclusion changes, corrections can be made through the deemed employer’s payroll in the next FPS and the worker reimbursed. This can be done by adjusting the worker’s year to date values to zero, setting the worker’s leave date to the same as the start date already used and submitting a corrective FPS or submitting in the next FPS. Simply deleting a worker’s record in payroll would not correct the position as corrective information must be submitted to HMRC through RTI in order to change HMRC’s records.
The client-led status disagreement process should always be used first where a disagreement exists over whether Chapter 10, Part 2 ITEPA 2003 applies. Page ESM10015A provides guidance for workers and deemed employers on how to follow the disagreement process and progress their dispute to HMRC should they continue to disagree.