The Government will legislate in Finance Bill 2019-20 to reform the off-payroll rules in the private sector.
Responsibility for operating the existing off-payroll working rules, and deducting any tax and NICs due, will move from individuals to the organisation, agency or other third party paying an individual’s personal service company.
Small organisations will be exempt, and this change will bring private sector organisations in line with public sector bodies and agencies. The change will come into effect from 6 April 2020.
Whilst the Off-Payroll Working Rules introduced a requirement on the Fee-Payer to deduct PAYE and National Insurance from the deemed direct earnings the legislation doesn’t make the Fee-Payer liable to statutory payments. Therefore, any liability to statutory payments will remain with the individuals Personal Service Company (PSC).
Under the Off-Payroll Working Rules amendments were introduced to the Social Security (Intermediaries) Regulations 2000 and the Income Tax (Earnings and Pensions) Act 2003. The changes added additional requirements to the Person (Company, Partnership, other intermediary and in certain cases the Public-Sector Body) making contractual payments to the PSC, the Fee-Payer.
If the Public-Sector Body believes the individual would be an employee if they worked for the Public-Sector Body directly, then the Fee-Payer becomes responsible for the operation of Income Tax and National Insurance on the deemed direct earnings as though the individual were their employee.
However, under Sections 151 and 163 of the Social Security Contributions and Benefits Act 1992, the Fee-Payer will only be liable to make statutory sick payments to Employee’s with a Contract of Service with the Employer. As the individuals do not have a Contract of Service with the Fee-Payer the individual will not be eligible to receive statutory sick pay and the liability to calculate any entitlement and payments due will remain with the individual’s PSC.