Is your business ready for the off-payroll reforms?
The off-payroll reforms are now only a few months away and as an end client you should be preparing for these changes to mitigate any potential disruption to your business and projects.
We have put together a checklist below to help you with your preparations:
- Audit your current contingent workforce. This audit should include looking at how the contractors are working (e.g. via an umbrella or their own limited company) and determining their assignments.
- Set up an internal working group. This can include employees from various departments e.g. HR, Finance or Procurement.
- Communicate with any contractors you currently have working for you. This should include informing them of your current plans, what you will do, and how it may affect them. You should also keep them updated at regular intervals.
- Carry out internal training to raise awareness of the changes. This will be particularly important for any hiring managers.
- If any contractors will be working beyond March 2020 you will need to provide a Status Determination Statement (SDS) using reasonable care. Additional detail is provided below. HMRC have also provided a Guide to Determining Status.
- Evaluate the impact of these assessments. If you determine any assignments as Inside will those contractors be willing to continue with the assignments? If not, you will need to establish plans for how these assignments will be carried out.
- Consider any changes that may need to be made to your finance or payroll systems.
- Check your supply chain. This may include carrying out due diligence on any umbrella companies in the chain.
- Client-led status disagreement process. This is part of the legislative requirements. You will be required to have an appeals process in place and provide a response to any appeal within 45 days.
Status Determination Statement
As part of your responsibilities under the off-payroll reforms you will need to provide a Status Determination Statement (SDS) using reasonable care for every assignment from the 6th April 2020. Sections in italics below are taken from the February update of the Draft Employment Status Manual HMRC released by HMRC.
The links will take you to the relevant parts of the Employment Status Manual which will also have examples you may find helpful. An example of an SDS would be the HMRC CEST tool but it is not mandatory to use that tool for a determination.
For the Status Determination Statement (SDS) to be valid the client must:
- state in the SDS whether or not the worker would be an employee or office holder, or is an office holder, for tax and NICs purposes if they were directly engaged by the client.
- provide their reasons for coming to that conclusion.
- have taken reasonable care in coming to their conclusion.
If the SDS does not satisfy the 3 criteria above, it will not be valid and the responsibility for the deduction of tax, NICs and apprenticeship levy, if due, and paying these to HMRC will rest with the client. Advertising a role as inside or outside the rules may add clarity to workers, but it is not, on its own, sufficient to be a valid SDS.
The SDS must contain the conclusion the client has reached as to whether the condition at s61M(1)(d) ITEPA 2003 and regulation 13(1)(d) SSCIR 2000 is met. This condition requires the client to determine whether or not the worker would be an employee or office holder if engaged directly. To make this decision the client must consider the status as if there were no other parties in the chain apart from the worker and themselves. The decision should be based on normal status principles.
The SDS must also contain the reasons why the client has come to their conclusion, based on the principles that govern whether a worker is an employee or office. This will include the relevant considerations made, so as to provide sufficient clarity around the conclusion. These reasons will give the worker and deemed employer the information they need to understand why the conclusion has been reached, and enable them to make representations should they disagree through the client-led disagreement process.
If the client has provided a conclusion with reasons, but has not taken reasonable care in doing so, this will not be a valid SDS, and responsibility for the deduction of tax, NICs and apprenticeship levy and paying these to HMRC will rest with the client.
HMRC expects each client to make a correct and complete determination, and preserve sufficient records to show how the decision was reached. Standard document retention rules apply to the SDS. A client with a small, straightforward workforce may only need a simple regime, provided they follow it accurately. Whereas a client with a larger and more diverse workforce may need to put in place more sophisticated systems.
In HMRC’s view, it is reasonable to expect a person with limited abilities, or who encounters a situation of which they have limited experience, to take care to find out about the correct tax treatment or to seek appropriate advice.
Examples of behaviours that would indicate a client has taken reasonable care include, but are not limited to:
- Accurately applying and keeping a record of the employment status principles.
- Accurately completing HMRC’s Check Employment Status for Tax (CEST) tool.
- Applying HMRC guidance on determining status.
- Seeking the advice of a qualified, professional advisor.
- Having someone with a good understanding of the work to be undertaken involved in the determination process.
- Checking existing individual determinations to ensure they remain valid / accurate.
- Reviewing the processes being applied and amending for future determinations where necessary.
- If there are any material changes to a worker’s terms and conditions, or working practices, making a new status determination.
- Ensuring they check and review processes of other parties where they subcontract the determination process to another party. The client remains responsible for the accuracy of the SDS even if it subcontracts that responsibility to another party.
Examples of behaviours which do not constitute reasonable care include, but are not limited to:
- Determining that every worker who provides their services through an intermediary is caught by the off-payroll working rules without giving any consideration to the specific facts of each individual case.
- Determining that the off-payroll working rules apply to a large group of workers who have some variations between the work that is being carried out, without giving proper consideration to the different working arrangements for each worker.
- Failing to reconsider determinations where there has been a material change in circumstances.
- An absence of any proper support or training within the organisation to enable those individuals responsible for making determinations to properly consider the off-payroll working rules.
- Inputting inaccurate information into CEST.
- Failing to take into account all relevant evidence.
- The person tasked with completing the SDS does not possess the knowledge required to complete it and is not provided with the required level of support.
- The client subcontracts the SDS process to another party and does not confirm the accuracy of that conclusion and the reasons for it.
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