Tania Bowers, Legal Counsel and Head of Public Policy at APSCo outlines what you should have done by now?
The delay to the roll out of off-payroll rules into the private sector (and implementing the changes into the public sector) will have been a welcome relief for some last year, particularly amidst the struggles that many have faced since the pandemic struck back in March. However, it was only ever going to be an extension, rather than a cancellation of Off Payroll, and the new deadline is fast approaching.
So, what should your staffing company have implemented by now and what should you prioritise before 6th April 2021?
A steering group needs to be in place
While, ideally this should have been in place for some time now, it is important that recruitment businesses have a steering group set up to agree the timeline, scope, task lists and define responsibilities for collecting status determinations from clients and passing them down the chain of supply, as well as co-ordinating client and contractor communication and the handling of any challenges to determination results. For those that set up steering groups last year, there have been modifications to the rules since March 2020 and HMRC have issued updated guidance on both Off-Payroll and CEST, in addition to the detailed Employment Status Manual (ESM) so the end-to-end process must be reviewed.
Review of Current Business
Hopefully you have reviewed or are in the process of reviewing your supply chain and understand which parts of your business contract with Personal Service Company (PSC) contractors.
Businesses need to have reviewed a) contracts and assignments with end dates beyond 6th April 2021, b) any contracts that are currently under negotiation that will expire beyond that date, and c) any contracts and assignments that a client is likely to extend beyond the deadline. You will also need to understand your exposure to the changes by considering the types of contractors you currently supply and the types of roles you fill across your sectors. Ideally this data should have been collated by now and recruiters should have begun to educate and consult with clients on their approach to assessing whether contractors fall inside or outside IR35.
If you haven’t already, as part of this review your steering group should also outline how queries regarding determinations will be dealt with both before and after the roll out of off-payroll rules. Many contractors with contracts straddling 6th April 2021 will prefer to terminate their current assignment and commence a new one in the new tax year, therefore you also need to consider notice provisions.
Any new assignments from 6th April will require status determinations so you need to have an outline of how communication with clients and contractors across the supply chain will be handled in the long term and who is responsible for this.
Supply Chain Review
It’s recommended that staffing companies review their preferred supplier lists of umbrella companies and if they don’t have one consider putting one in place. Some clients are insisting on contractors working via a PAYE model and for contractors assessed as inside IR35 working via a PAYE model is preferable to working inside IR35 via their PSC. Basically, an umbrella company employs the worker on a UK employment contract, and is therefore responsible for their PAYE, NICs and employment rights such as pension enrolment.
Non-compliant umbrella companies offering high levels of take-home pay by using “disguised remuneration” models are under HMRC scrutiny and are a tax and legal risk to the contractor, recruiter and client. Working with umbrella companies accredited by APSCo, the FCSA or Professional Passport reduces these risks significantly and recruiters can take comfort that the umbrella is run by “fit and proper” persons and is financially stable.
Status determinations should be well under way by now, but if not, it is important to push these forward as soon as possible without compromising on compliance. It’s in the best interests of staffing firms to ensure rash decisions and potential blanket bans on PSC contractors aren’t made by end-clients, so ensuring adequate time is being allocated to not only making determinations, but also handling any challenges to decisions or unclear determinations, is key. Many clients are choosing to use HMRC’s CEST tools but commercial assessments and insurance are available to help clients use reasonable care in coming to the correct conclusion on status.
Agree any new business models
Recruitment businesses should also have defined any changes to business models by now. Control is a key aspect of IR35 determinations, with the control over how a contractor performs the work a crucial consideration.
In order to ensure this is appropriately managed, many staffing firms have chosen two potential models, but both require a number of compliance considerations that should be under review by now:
- Consultancy work: this is where a party delivers an “outsourced service” as an expert (not the supply of a person’s services) to a client. In this case if the party delivering the outsourced service chooses to use a PSC contractor, then for the purposes of off payroll, it is the client and needs to do the SDS. Delivering an outsourced service carries more risk and the consultancy must expand insurance coverage to cover the area of expertise (it is not recruitment). If the service was incorrectly labelled as outsourced and in fact it was a service to which off payroll applies, then the client may be liable to HMRC for breaching off payroll. Hence, recruiters should not consider the consultancy model as a commercial advantage or a “quick win”.
- Outside IR35 SoW: Many PSC contractors will be looking to deliver project style services to support their status as an independent professional, working outside IR35. However, for any recruitment firm choosing this option, there will need to be clear agreements in place with existing clients that are appropriate for a SoW model and avoid the recruiter taking on contractual risk – the PSC contractor should be responsible for the quality of the services, acts and omissions.
Prepare for challenges from HMRC
The legislation and guidance is now clearer on when an unpaid PAYE debt payable by a deemed employer (the fee payer) can be recovered from others (relevant persons). This means that if an HMRC officer considers there is “no realistic prospect of recovering these taxes from the deemed employer within a reasonable period” then HMRC can recover payment from the highest person in the chain or the second highest person in that chain, where that agency is also a resident in the UK.
Use your time wisely
The Association of Professional Staffing Companies (APSCo) has stressed for some time now that preparation ahead of 6th April is key. With only a short time left, it’s crucial that agencies have:
- A steering group in place to drive SDS – where these have been in place for some time, they will need to review end-to-end processes in line with up-dated HMRC guidance
- Reviewed supply chains and developed a clear understanding of where PSC contracts are in place
- Reviewed umbrella PSLs or put one in place if the firm doesn’t currently have one
- Begun the status determination process – but if not, don’t compromise compliance for speed
- Agreed any new business models – whether that’s a consultancy work or outside IR35 SoW model
- Prepared for any possible challenges to determinations from contractors or HMRC
Any staffing companies with future plans to engage the contract workforce in the UK post 6th April 2021 will need to have a process in place to enable them to work with end-clients to accurately and fairly identify a contractor’s status to prevent any knock-on effect on placements in what is already looking to be a tough year for recruitment.