Off payroll - into the unknown

In my recent article I explained that HMRC were building up their compliance activity in respect of off-payroll engagements and suggested a few questions for engagers to consider to help reduce their risks. These could be summarised as follows:

In this article, I examine the first of these areas - "discover" or knowing that you have captured all the workers within the scope of the off-payroll legislation without inadvertently capturing those where it doesn’t apply.

One of the key issues faced by businesses in the lead up to the changes in 2021 was understanding which workers were in scope.?? This still applies but can also now include the questions “are my processes too rigid?”, “am I putting off genuine self employed workers from working with us?” and even “is there a risk that my colleagues are gaming the system to hire the workers they need?”

Add to this the fact that HMRC are starting to fact find so that they can decide which engagers to review in detail, what should you being doing to check that your processes are still fit for purpose?

My first suggestion is to ask yourself the sort of questions HMRC will ask before they start an enquiry. HMRC have a bank of straightforward questions but often the most difficult to answer is what might be thought of as the simplest.

“What is the total number of workers engaged via a limited company in the last 12 months and what is the total spend relating to them?”

If you can’t answer this question easily and with a high degree of confidence, this highlights that you might need to do some preparatory work before HMRC ask the same question.

On the surface, other questions also are straightforward such as

“Please provide the number of contracted out services, the nature of the services and the names of the service providers”

but many engagers find that the internal enquiries needed to respond to HMRC highlight examples of bad practice, misunderstandings in how the legislation works and therefore potential liabilities.

So, how can you be certain that you are capturing everyone, excluding those suppliers that are out of scope and that your processes aren’t beginning to break down over time? ??Don’t forget also that a question about IR35 may soon lead to follow up questions on self employed workers, agency staff, consultants or anyone else engaged other than via your payroll.

The first recommendation is that you have the buy in of the key stakeholders in the business.? Without this you will meet resistance to any necessary changes and even to the information request itself.? If necessary, remind the stakeholders of the potential tax at risk if errors are made and the resulting reputational damage!

Next you need to be clear as an organisation who takes ultimate responsibility for off-payroll workers and compliance surrounding them.? Is it tax, HR, legal, procurement or a joint effort?? Either way, it is that person who should sign off on any response to HMRC and they will want to be comfortable that they aren’t saying the wrong thing.

Then, how can you easily identify the off-payroll workers in your business.? In the absence of a separate system for engaging and paying such workers (and even if you have one!), will you need to interrogate purchase ledgers, procurement systems etc to compile such a list?

If you do, this can be a very time consuming and potential inaccurate way of compiling your response so look to automate this as much as possible.? BDO have developed a data interrogation tool specifically to help businesses with this task which automatically checks data against Companies House and provides you with a list of potential off payroll workers so please let me know if you think this could help you.

Once you know who your workers are, can you categorise these in any way to check for consistency – in other words are all the contractors undertaking similar duties treated the same for PAYE/NIC purposes?? Are your hiring managers being consistent in their approach?

Finally, do you have a system in place for rechecking the position after a certain period (every 6 months for example)?? If not, you could be storing up problems for yourself as longer term contactors can often change the way they work over time meaning that the original decision taken on status may no longer be valid.? Whilst not a deciding factor, being invited to social events, team meetings, becoming part of the management of a project etc could indicate a greater amount of integration than initially intended.

Certainly, ensuring that you have a process in place to determine the off-payroll workers you have engaged or paid in the last 12 months and to cast a critical eye over the data periodically will help you to better understand where any risks might lie – before HMRC come knocking!