Tax Arrangements for Off Payroll Public Sector Contractors

Following the review by HM Treasury into “Tax arrangements for public sector appointees”, we thought we would pre-empt companies that are now seeking assurances concerning the correct, fair and timely deductions and payments of Income Tax and National Insurance contributions for employees of Contractor Umbrella.

So what does the new legislation mean?

The review recognises that there are circumstances in which it may be appropriate for an employer to appoint a contract worker who will be paid ‘off payroll’ i.e. through a PSC or intermediary such as an umbrella company, but some individuals who are engaged in this way may not be paying the correct amount of tax and therefore depriving the Treasury of revenue.

It is essential that Public Sector employers are able to assure themselves that their long-term senior staff are meeting their tax obligations, so the Government is proposing to tighten the rules associated with employing people off payroll:

• the most senior staff must be on the payroll, unless there are exceptional temporary circumstances.
• departments will be able to seek formal assurance from contractors with off payroll arrangements lasting more than six months and costing over £220 per day that income tax and national insurance obligations are being met. Departments should consider terminating the contract if that assurance is not provided.
• this will be monitored carefully with financial sanctions for departments that do not comply.

Extract taken from the HM Treasury website; please click here to read the full article.

It is also important to note that IR35 has been clarified further by HMRC with a series of Business Entity Tests http://www.hmrc.gov.uk/ir35/guidance.pdf. From next year contractors working through a PSC will have to declare their IR35 status on their self-assessment tax return, if they declare that they are outside, which is financially beneficial, they will be required to prove it to HMRC. Before the new guidance, IR35 investigations were random to a certain degree but now those declaring that they are outside IR35 will be targeted and the burden of proof is on the individual and not on HMRC

So what is Contractor Umbrella doing to ensure our employees are compliant?

In short all Contractor Umbrella employees are already covered, so there are no changes to contracts, no new terms of employment and no additional worries raised because of this legislation.

Umbrella Companies provide payroll solutions for individuals who would otherwise be required to form their own private limited company, the solution Contractor Umbrella provides guarantees the statutory deductions for National Insurance and Income Tax and, as an employer, we also make the required payments for Employer’s National Insurance. These deductions are made via the standard PAYE system.

Our policies and procedures, as well as our business practices, have all been extensively and successfully reviewed by HM Revenue & Customs and Saffreys Champness. Furthermore, we are subject to an annual independent audit, the most recent performed by Kingston Smith. Recent “inspections” show us to be fully compliant with all current tax and employment legislation.

If you have any questions on IR35 please call Jaime on 01206 591 000 or email jaime.thorpe@contractorumbrella.com.