An intermediary will normally be a worker’s personal service company, but could also be a partnership, a managed service company or an individual.
If the IR35 rules apply, then HM Revenue & Customs (HMRC) expects the correct employment taxes and National Insurance to be paid by deduction from fees and paid to HMRC.
FROM 6 APRIL 2020
Some rules already apply to public sector clients. From 6 April 2020 how the rules are applied will change and public sector authorities and medium and large-sized private sector clients will be responsible for determining whether the rules apply.
Private sector companies are those that meet two or more of the following conditions:
• You have an annual turnover of more than £10.2 million.
• You have a balance sheet total of more than £5.1 million.
• You have more than 50 employees.
This is in line with the government’s normal defnition of a ‘small company’ If a worker provides services to a small company in the private sector, the worker’s intermediary will remain responsible for determining the worker’s employment status and if the rules apply.
CLIENT RESPONSIBILITIES
As a client you will need to decide the employment status of a worker; you must do this for every contract you agree with an agency or worker. You will need to:
Communicate your determination and the reasons for the determination to the worker and the person or organisation with whom you contract.
• Make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid.
• Have processes in place to deal with any disagreements that arise from your determination.
HOW TO PREPARE
If you are also the fee-payer and the off-payroll working rules apply, you will need to deduct and pay tax and National Insurance contributions to HMRC. Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020. You can use HMRC’s Check Employment Status for Tax service to do this.
Discuss with your contractors about whether the off-payroll rules apply to their role.
Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.
NATIONAL MINIMUM WAGE (NMW)
NMW legislation is administered by HMRC, which carries out periodic inspections of businesses as well as responding to complaints and queries raised by employees (and more frequently, former employees). Mistakes when it comes to NMW are both costly and potentially damaging to an employer’s reputation given that those who do get it wrong are ‘named and shamed’ by HMRC. Penalties of 200 per cent of any underpayment can be imposed, up to a maximum of £20,000 per worker. As a result it is important that employers ensure they are operating within the NMW legislation when it comes to paying employees and the following points cover common errors in this regard. Employers need to be careful when making deductions (other than statutory deductions required by law) from employees who are paid at or near to NMW. If an employee has a deduction from pay, for example for uniforms, and this deduction takes the employee below NMW then this is likely to be a breach of NMW legislation. In addition, employers must also monitor employees at or near NMW who have reductions via salary sacrifce, perhaps in relation to pension contributions, as if this takes their pay below NMW then this will also be a breach.
Employers must take care where they are averaging employees’ pay. NMW legislation only allows averaging over two pay periods and breaches have been found to occur even in circumstances where employees have agreed to arrangements that level out their pay for their own convenience.
EMPLOYEE EXPENSES
Employee expenses form a complex part of employment tax legislation. Generally speaking, expenses can be paid tax free if they relate to business travel, including the food, drink, parking and other expenses bought in relation to such travel, or if expenses are incurred wholly, exclusively and necessarily in the performance of the employment.
All expenses payments provided tax free must be subject to suitable checking procedures to ensure that they have been incurred in appropriate circumstances. When HMRC performs an employer compliance review, it will inevitably check the expenses process and errors found result in payment of historic liabilities, interest and penalties.
Further details concerning incidental overnight expenses, allowances, driver overnight allowances, overseas allowances, HMRC approval notice, checking systems, trivial benefts and employer tax deadlines can be found in the FTA Yearbook of Road Transport Law or by contacting the FTA Member Advice Centre. For specifc legal advice on employment law, members are advised to contact a qualifed employment law solicitor.
AGENCY WORKERS
With regard to determining the correct payment arrangements and ensuring appropriate deductions of tax and National Insurance are made from payments to agency workers, this is fundamentally the responsibility of employment businesses supplying them. However, with increasing media attention to the ‘gig’ economy, self-employment and worker exploitation, the reputational risk for hirers of agency workers cannot be ignored and a level of due diligence is recommended to provide comfort in relation to compliance.
From 6 April 2020, a new regulation resulting from the Good Work Plan will require employment businesses to issue agency workers with a ‘key information document’, to include information such as the type of contract they will be engaged under, the rate of remuneration and holiday entitlement as well as deductions and fees payable.
