Payroll and employee incentives

 

The taxation of off-payroll workers and the link between employment status and tax continue to be the subject of review with a discussion paper and consultation announced.

The Budget confirmed that the previously announced reforms to the national insurance contributions (NICs) system have been delayed for a year. The NIC rates remain unchanged.

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​​Changes to the taxation of contractors and Personal Service Companies will increase risk of PAYE and NIC exposure for many companies

From April 2020, medium and large private sector organisations will be responsible for assessing the employment status of any contractors whose services are provided under a contract with a Personal Service Company (PSC) or intermediary, accounting for any Pay As You Earn (PAYE) and employees’ and employers’ National Insurance Contributions (NICs) due.

From 6 April 2020, private sector organisations will potentially become liable for PAYE and employer NICs in respect of payments to contractors engaged through an intermediary company or a PSC. This is an extension of the so-called IR35 rules, so that the obligations to correctly operate PAYE and account for NICs will now fall on the engaging company in most circumstances. The rules will apply to all engagements that are in place on or after 6 April 2020 in medium and large organisations. Small companies will be exempt.

The organisation that makes payments to the contractor or intermediary will be responsible for determining the status of the contractor and assessing whether or not PAYE and NICs will apply even where there is no direct contract between the individual and the company making payments.

No details have yet been provided on where exactly responsibility will lie in more complex cases where there are multiple intermediaries in a chain between the end user of services and a contractor. Nor has there been any confirmation of what the definition of a small company will be for these purposes. A further consultation on the detailed operation of the reform will be published in the coming months.

Our comment

"It will be welcome news to the organisations affected that the changes have been delayed until 6 April 2020. Given the extent of the preparations required, however, many companies will already be considering their risk exposure and putting appropriate procedures in place. Significantly, the rules will apply to contractor arrangements already in place at 6 April 2020 as well as new arrangements; therefore, these rules will need to be considered when entering into or extending contracting arrangements over the coming year. For example, twelve-month contracts beginning on or after 6 April 2019 will be affected by the new rules.

This measure will have a significant impact for all companies that do not meet the small company exemption. There will be increased administration required when taking on contractors, increased costs for engagers and decreased net income for contractors where the new rules are applicable. Even a single contractor can easily lead to tens of thousands of pounds of possible exposure, so interest and penalties for non-compliance could also be significant.

In advance of the changes, organisations will need to undertake a review of the contractor relationships already in place, to ensure they will be compliant come April 2020. It will also be necessary to design and implement processes both for assessing new contractor engagements and for reviewing existing engagements on an ongoing basis; HMRC will consider these processes when testing for non-compliance."

When will it apply?

The changes will come into effect from 6 April 2020.

​​PAYE special arrangements for short-term business visitors to the UK: An extension of the PAYE payment deadline and an increase in the UK workdays threshold

The payment deadline for settling employers’ PAYE liabilities in respect of short term business visitors (STBVs) under a special arrangement will be moved back from 22 April to 31 May following the tax year-end. The number of UK workdays permitted for STBVs to be eligible for the special arrangement will be increased from 30 to 60.

The PAYE special arrangement is used by UK employers who host STBVs from overseas employers and whose earnings are not eligible for exemption from UK tax under a double taxation agreement. These STBVs commonly do not qualify for tax exemption because they are from an overseas branch of a UK company, or from a country with which the UK has not entered into a double taxation agreement.

The arrangement enables the employer to make one single PAYE payment for all STBVs, rather than through monthly payroll reporting for each STBV.

The extension of the payment deadline from 22 April to 31 May following the tax year-end will give more time for employers to collate the necessary information required to make the return. The increase in the UK workday limit from 30 to 60 will enable PAYE to be settled for more STBVs under the special arrangement. 

Our comment

"The PAYE payment deadline extension will be welcome news for employers operating PAYE special arrangements, who will have longer to collate the requisite information and to calculate the amounts subject to PAYE.

Also welcome is the relaxation of the eligibility criteria for STBVs by increasing the UK workdays limit to 60, as fewer STBVs will need to be reported through payroll on a monthly basis.

The above changes will increase the appeal of the PAYE special arrangement.

It is, however, disappointing for employers that the recommendations in the consultation to exempt STBVs from overseas branches of a UK company are not being taken forward."

When will it apply?

These changes will apply from 6 April 2020.

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

 

 

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