Off-payroll rules from April 2020

Tax Question

What type of companies do the off-payroll rules from April 2020 apply to and who has to deduct the tax and NIC.

Tax Answer

From 6 April 2020 medium and large-sized private sector clients need to apply the off-payroll rules. The private sector includes third sector organisations, such as some charities.

The rules apply to all public sector clients and private sector companies that meet 2 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

Balance sheet total means the total amounts shown as assets in the company’s balance sheet before deducting any liabilities.

The fee payer is responsible for deducted the tax and NIC.

In most cases the organisation paying a worker’s intermediary will be the fee-payer.

To be a fee-payer, they must be the lowest party in the labour supply chain. This is usually the person paying the worker’s intermediary.

As fee-payer must:

• be resident in the UK, or have a place of business in the UK
• pay an intermediary that is controlled by the worker or associate of the worker
• not be controlled, or material interest not be held, by either:
  • a worker, alone or with one or more associates of a worker
  • an associate of a worker, with or without other associates

The fee-payer you should be given the worker’s employment status determination by the client or agency immediately above them in the supply chain.

If the fee payer does not receive the determination, the fee payer should pass on the payment without deducting taxes and National Insurance contributions. Before the fee payer does this, they may want to ask the client or agency immediately above them in the labour supply chain to find out why they haven’t received a status determination.

Responsibilities of the fee-payer

When the fee payer receives the worker’s employment status determination and the off-payroll working rules apply, they must:

• calculate the deemed direct payment to account for employment taxes and National Insurance contributions associated with the contract
• deduct those taxes and employee National Insurance contributions from the payment to a worker’s intermediary
• pay employer National Insurance contributions
• report to HMRC through Real Time Information the taxes and National Insurance contributions deducted
• apply the apprenticeship levy and make any payments necessary