More rules for employers
- Publish date: 15 June 2017
- Archived on: 19 February 2019
Peter Bickley highlights two important April 2017 tax changes relating to disguised remuneration and off-payroll working.
A number of April 2017 changes that affect many employers are described in Sarah Bradford’s article in the April 2017 issue of ICAEW’s TAXline magazine. This article looks at two less commonly encountered areas, on which the Employment Taxes and National Insurance Contributions Committee (ETNICC) has been working. These are:
- workers’ services provided to the public sector through intermediaries; and
- employment income provided through third parties (disguised remuneration).
Off-payroll workers in the public sector
- The intermediaries legislation (often known as IR35) is to be reformed for workers’ services provided to the public sector through intermediaries, and will apply where:
- an individual personally performs, or is under an obligation personally to perform, services for a public sector client;
- the services are provided not under a contract directly between the client and the worker but under arrangements involving an intermediary; and
- the circumstances are such that:if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client or the holder of an office under the client; or
- the worker is an office-holder who holds that office under the client and the services relate to the office.
Responsibility to account for any employment taxes and national insurance contributions (NIC) due (including paying employer’s NIC) will move to the public sector body, agency or other third party directly paying the individual worker’s personal service company (PSC) (‘the fee-payer’).
The change applies to payments made on or after 6 April 2017 even if services were delivered before that date.
The 5% tax-free allowance for general business expenses, available to workers currently applying the IR35 rules, will be withdrawn for PSCs working in the public sector that are in scope.
The public sector client will be responsible for determining whether or not the rules apply and will be required to share this information with the person with whom it contracts, on or before entering into the contract, and must explain, in writing, within 31 days of a written request by the other party to the contract, why it considers the rules apply. Unfortunately, if there is a chain of intermediaries, the right to information does not extend along the chain.
The individual worker is, at the same time, required to inform the fee-payer whether or not one of the tests for off-payroll work is met. If the worker fails to comply, the new rules will apply automatically.
Public sector bodies in scope are those subject to the provisions of the Freedom of Information Act 2000 and the Freedom of Information (Scotland) Act 2002. The rules remain unchanged for the private sector, although certain bodies that might be thought of as private sector may find themselves treated as public sector bodies under this measure.
The government is tackling existing and future disguised remuneration avoidance schemes by strengthening the current rules in Part 7A of Income Tax (Earnings and Pensions) Act 2003 (ss 554A–554Z21).
Disguised remuneration loans that were made after 5 April 1999 and remain outstanding on 5 April 2019 will be subject to a new charge.
Disguised remuneration schemes that avoid tax on earnings from self-employment are in scope from 6 April 2017, and a charge to tax on loans and amounts previously made available – and which have never been repaid – is being introduced. This will operate in a similar way to the employment loan charge.
Employers will be prevented from claiming a deduction against profits for contributions made on or after 1 April 2017 (corporation tax) or 6 April 2017 (income tax) to a disguised remuneration scheme unless income tax and NIC are paid within a specified period.
|This article originally appeared in the May 2017 edition of TAXline under the title 'More rules for employers'|
About the author
Peter Bickley, Tax Faculty technical manager supporting the ETNICC