The private sector off-payroll working rules have been in place since April 2021, but for the first 12 months businesses have benefitted from HMRC’s relaxed stance on penalties.

HMRC will now, however, penalise mistakes made in applying the rules.

HMRC will charge penalties for any inaccuracies relating to the operation of the off-payroll working rules that occur from 6 April 2022 onwards.

Medium and large-sized private sector contracting companies are responsible for determining the employment status for any contractors they use.

Size check

Small private sector contractor companies are not subject to the new off-payroll working rules.

It is important to check the size classification every year in accordance with the Companies Act definition.

  • Check the size classification again if a business has grown or been brought by another organinsation.
  • It is good idea to confirm small company status with contractors as they will be responsible for determining their employment status.

Compliance

There would be no problem complying with the rules if there was a clear definition of employment as opposed to self-employment. The Check Employment Status for Tax (CEST) tool from HMRC falls far short of what is needed, resulting in government departments finding themselves liable for millions of additional taxes.

Two recent Court of Appeal cases (both pre-dating the change in rules) show how difficult determining employment status can be:

  • Paul Hawksbee, a presenter for TalkSport Radio, prevailed at the First-Tier Tribunal, but HMRC was successful at the Upper Tribunal.  The Court of Appeal has confirmed this, resulting in a tax cost of over £140,000.
  • BBC Radio Scotland presenter Kaye Adams won at both the First-Tier Tribunal and Upper Tribunal. However, the Court of Appeal ruled that the Upper Tribunal erred in making its decision. The case has therefore been sent back to the Upper Tribunal to be reheard. A tax of over £124,000 is at stake, with Adams’s legal costs outweighing this amount.

Guidance on the off-payroll working rules for contractor companies, along with some useful links, can be found here.

How can we help you?

If you need help with your payroll and guidance on the off-payroll working. Please do get in touch on 01273 963656 or 01444 716946, or email us.