Budget 2016: Employers given responsibility to ensure off-payroll workers’ tax compliance

Public sector employers face the prospect of invading workers’ tax affairs to fulfil compliance with rules around the use of personal service companies.

According to HM Treasury: “From April 2017, where the public sector engages an off-payroll worker through their own limited company, that body (or the recruiting agency if the public sector body engages through one) will become responsible for determining whether the rules should apply, and for paying the right tax.”

The move is intended to enforce tax payment by individuals who work through their own limited company undertaking jobs that would ordinarily mean they are employees of that organisation.

In this situation the onus is on the worker to comply with the rules, however Treasury estimates non-compliance totals £440m per year.

Instead, public sector employers will be given the responsibility to ensure that the people working for them are paying the right tax.

Any loans given to participators will be taxed at 32.5% to prevent tax avoidance.

BKL director Geraint Jones explained: “This measure places a significant burden on employers to decide whether PAYE is going to be applicable.

“These public sector orgs are going to have to assess potential contractors’ status without necessarily being in possession of all the information required.

“Exactly how the government envisages employers to investigate employees’ personal tax status remains to be seen. I look forward to seeing how the proposed test and tools work given the difficulties with previous attempts.”

Treasury added that: “This strengthens the public sector’s role in ensuring that the workers it engages comply with the rules.”

It is expected to raise £265m for Treasury in its first year and a further £290m in the following three years.

Government said it recognised the rules could be complex and it was looking in to clarifying them with a simpler set of tests and online tools that will provide a clear answer as to if and when the rules should apply.