CTG has received an update from the HMRC Off-Payroll Working Programme team, confirming that the Government and HMRC have laid the Statutory Instruments that make the necessary changes to PAYE and NICs regulations, in preparation for the changes to the off-payroll working rules, which will come into force on 6 April 2021.

Background

The Income Tax (Pay As You Earn) (Amendment) Regulations 2020 contain detailed provisions allowing for the recovery of PAYE income tax liabilities from a third party where a deemed employer (the party treated as making a payment of earnings to the worker’s intermediary) has failed to make PAYE tax deductions on payments for an off-payroll worker and there is no realistic prospect of recovering the outstanding income tax from the deemed employer within a reasonable period. The PAYE regulations can be found here:  http://www.legislation.gov.uk/id/uksi/2020/1150.

The Social Security Contributions (Intermediaries) (Miscellaneous Amendments) Regulations 2020, make similar provisions for NICs purposes to those provided for income tax in the primary legislation and in the PAYE regulations. The NICs regulations can be found here:  http://www.legislation.gov.uk/id/uksi/2020/1220.

As you will be aware, the Government has consulted extensively on the off-payroll working reform over a number of years. On 7 January 2020, the Government announced a review of the implementation of the reform to identify any further steps the Government could take to ensure the smooth and successful implementation of the reform. A draft version of these regulations was also published for consultation on 22 January 2020. A summary of the changes made to the regulations following the outcome of the review and consultation are set out below.

Changes made to the PAYE regulations

Reg	Change
Implementation Date	The implementation date was changed from 6 April 2020 to 6 April 2021 to reflect the delay to the reform.
97LF – End of relevant period	The time period in which HMRC can issue a recovery notice has been reduced from 24 months to 12 months.
97LG	Recovery notices will include the details of the deemed employees so that the agency or client can know the worker to whom the debt relates.
Various throughout	Simplification of language where possible

 

Changes made to the NICs regulations

The NICs regulations include a number of changes resulting from the recommendations that arose following the review of the implementation of the off-payroll working reform carried out earlier this year, which sought to identify any further steps the Government could take to ensure the smooth and successful implementation of the reform.

HMRC is currently considering what action is required to correct an unintended widening of the definition of an ‘intermediary’ in the legislation. Should a legislative change be required to ensure the OPW rules apply as intended, this would require an amendment to the NICs regulations, which would be made ahead of 6 April 2021.

Reg	Change
Implementation Date	The implementation date was changed from 6 April 2020 to 6 April 2021 to reflect the delay to the reform.
Reg 2(4) inserting new Reg 5A(2)	Excluding wholly overseas clients from Chapter 10 and instead requiring the worker’s PSC to continue to determine status.
Reg 2(4) inserting new Reg 5B	Adding a requirement for clients to confirm their size at the request of the worker or agency, the client contracts with.
Reg 5	Amending the regulations so they only apply to services provided after 6 April 2021.
Reg 2(14) inserting new Reg 20(1)	Limiting the time period by which representations can be made; before the last payment for an engagement.
Reg 2(14) inserting new Reg 20(2)(b)	Adding the requirement that a revised Status Determination Statement issued following the submission of representations includes the date it applies from.

Summary of comments not addressed

Comment	Reason for not addressing
The reform should be delayed further	The Government has already made the decision to delay this reform until April 2021 in response to the COVID-19 crisis. However, there is no rationale for further delay. The reform was originally announced at Budget 2018. Many businesses were prepared for the reform to be implemented in April 2020 as originally planned, and HMRC is continuing to undertake a significant program of education and support to ensure that large and medium-sized businesses are ready to implement the reform.
There should be safeguards that HMRC have to meet before recovering PAYE debts from other persons.	We concluded that this feedback was about giving people confidence about when HMRC’s powers will be exercised. We think that concern is best addressed by guidance, which can be updated and adapted to give confidence in scenarios that might not have been foreseen, when legislation was written. HMRC’s detailed guidance in the Employment Status Manual sets out clearly when HMRC will and won’t seek to recover PAYE debts from other persons. HMRC is entitled to seek to recover when there is no realistic prospect of otherwise recovering the tax that should have been paid and has a clear position set out in guidance that we will consider carefully when it is appropriate to use this power to recover. HMRC has made it clear that it would not seek to recover any unpaid tax and NICs in cases of genuine business failure on the part of the deemed employer or first agency in the labour supply chain. HMRC will always consider very carefully whether it is appropriate in a particular case to recover a debt from someone other than the original party. HMRC has also set out in guidance, the steps that clients and first agencies can take to secure labour supply chains to reduce the likelihood of the recovery power needing to be used.
Genuine Business Failure (GBF) should be defined in the legislation.	Putting the definition of what constitutes a genuine business failure into the legislation would unnecessarily limit the flexibility required for HMRC to be able to judge whether it is appropriate to use the provisions or not. However, HMRC’s detailed guidance in the Employment Status Manual includes example scenarios setting out what we would and would not consider to be a genuine business failure.