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.
Small private sector contractor companies are not subject to the new off-payroll working rules. Size classification is based on the Companies Act definition and should be checked each year.
- This is particularly the case if a business has grown in size or been bought by another organisation.
- It is good idea to confirm small company status with contractors as they will be responsible for determining their employment status.
There would be no problem complying with the rules if there was a clear definition of employment as opposed to self-employment. Unfortunately, HMRC’s Check Employment Status for Tax (CEST) tool falls well short of what is required, and even government departments have found themselves liable for millions in additional tax after erroneously relying on the CEST tool.
Two recent Court of Appeal cases (both pre-dating the change in rules) show how difficult determining employment status can be:
- Paul Hawksbee, a regular presenter for TalkSport Radio, prevailed at the First-Tier Tribunal, but HMRC was successful at the Upper Tribunal. This has been confirmed by the Court of Appeal, resulting in a tax cost of over £140,000.
- Kaye Adams, a presenter for BBC Radio Scotland, was successful at both the First-Tier Tribunal and Upper Tribunal, but the Court of Appeal felt the Upper Tribunal had erred in making its decision. The case has therefore been sent back to the Upper Tribunal to be reheard. 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.