What is off-payroll workers legislation?
Off Payroll workers legislation also called Intermediaries legislation or IR35 was originally introduced in 2000 to tackle tax avoidance. The Government estimate non-compliance is costing £440 million per year.
The Treasury announced reform in the 2016 Budget and the new rules will apply from April 2017.
What does this mean for Bangor University?
The reform introduces new rules and penalties and shifts responsibility for applying the rules to all public sector organisations like the University including its wholly owned subsidiaries. The private sector is not affected.
The University will have a legal responsibility to determine whether the rules apply to services bought from limited companies and partnerships commonly known as Personal
Service Companies* (PSC) where the worker is the owner. The same rules will also apply to workers supplied by agencies, who do not operate PAYE tax and national insurance deductions on the worker.
The University will have to calculate, deduct from payments , report and pay over the relevant tax and national insurance, if new rules do apply. This will also include Employers National Insurance and the new Apprenticeship levy adding to the costs of the invoice by approximately 14%
The University will be liable for any breach and could incur financial penalties.
On what type of purchases do the new rules apply?
The University uses off-payroll workers in a variety of capacities, usually to deliver specialist, skilled expertise at short notice. They may also be known as Freelancers, contractors or sole traders. Examples would be visiting specialist lecturers, researchers and consultants, which can include experts from industry, like architects, engineers, business consultants and computer systems experts.
Temporary short-term cover or consultants may also be supplied by agencies, who do not operate PAYE on the workers. This type of supply may also be subject to the new rules.
It does not include large companies PLC and LLP, Managed service companies, purchases of goods, purchases of services that are provided at the businesses’ premises such as a car servicing or services where it is clear the contractor is providing their own specialist or substantial equipment/tools to complete the job for example; plumbers, electricians, excavators or delivery company.
Essentially, it is those services provided by a limited company or partnership where there is, primarily, a labour only supply and the work is personally performed by the owner
How the rules apply?
Prior to the work starting, the PSC or Agency will need to provide the University with sufficient information to determine if the new rules apply.
The PSC may be liable where the information provided to the University leads to an incorrect determination.
If the form of the business is within the rules then the University will need to use the HMRC Employment Status Check for Tax (ESCT) online tool to make a determination concerning the work to be undertaken by the PSC worker.
Provided the University correctly uses the tool, the HMRC will stand by the ESCT determination result.
What it means for the supplier?
For a limited Company or Partnership, If the nature of the engagement is deemed as within the scope of intermediaries legislation then the Invoiced amount less materials/expenses and VAT will be used for the calculation of Employee Tax and National Insurance contributions and Employer National Insurance and Employers Apprentices Levy.
The supplier will be paid the total of the invoice less the calculated tax and national insurance. HMRC will be paid the total of Tax, Employees and Employers NI and Employers Apprentice Levy.
For Sole Traders, if the nature of the engagement is deemed employment then the payment must be made through the payroll.
For engagements of less than 3 months through the Casual Payroll Process.
For longer engagements, HR would need to issue a contract of employment and using the existing recruitment process.
What it means for departments?
The new procurement procedures introduced in February (https://www.bangor.ac.uk/finance/news/procurement-procedures-30874)
state that orders must be raised for all purchases except those on Purchasing Cards. Only suppliers on the Agresso system can be used for orders.
In line with this policy, the suppliers file has been reviewed and any suppliers who potentially fall inside the new rules have been closed. If any of these suppliers are required in the future, a new supplier must be requested.
The new supplier procedure (attached) has been amended to ensure all new supplier requests are checked and a determination made of the status of the supplier.
A determination of within the scope of the new rules will add approximately 14% onto the quoted cost as Employers National Insurance will be payable. This will need to be factored into any comparisons of quotations.
The department or the supplier may be unwilling to agree terms if a ‘within the scope’ determination is made and a new supplier should be sought.
Staff are reminded that personal services should not be procured on a Purchasing Card.
It is essential that the procurement procedures and the new supplier procedures are enforced rigorously by all staff within departments when purchasing goods and services on behalf of the University.