Non-payroll labour: the cost of getting it wrong
28 September 2017
In April 2017, the Government introduced new legislation to help tackle the perceived abuse of tax/ NIC relating to non-payroll labour in the public sector. This is the latest legislation in tackling the sphere of non-payroll labour, but very unlikely to be the last given the amount of press attention this area has faced in recent years. This heightened HMRC activity further compounds the obligations that engagers must navigate to ensure they don’t fall foul of the legislation and end up with an expensive tax bill.
HMRC will always test a business’s practices relating to the employment status of individuals, ie those engaged directly on a self-employed basis. This is to ensure that taxes are paid under the correct legislation and involves examining both the contractual and actual arrangements in place between the individual and the engager. HMRC have more recently widened its scope and employers must understand not just employment status but also IR35, pre and post April 2014 intermediary rules, offshore host employer rules and public sector rules.
Counting the costs
- The risk of getting it wrong can be huge and could include:
- unpaid PAYE for the last 6 tax years
- unpaid Employees and Employers NIC for the last 6 tax years
- under-deducted auto-enrolment employee pension contributions
- unpaid auto-enrolment employer pension contributions
- interest on unpaid PAYE/NIC
- penalties for the above failures
- potential claim for entitlement to employment rights
- unpaid Apprenticeship Levy
- protracted enquiries with HMRC involving considerable stakeholder time.
Furthermore new Corporate Criminal Offences obligations exist that could lead to criminal convictions, unlimited fines and public record of the criminal offence. Whilst for the largest organisations, businesses falling within the Senior Accounting Officer obligations could necessitate qualifying an SAO statement, a personal fine for the Senior Accounting Officer or potentially court proceedings.
It is easy to see how the costs of such errors a can quickly become substantial and even threaten the viability of the organisation going forward. It is essential that all parts of an organisation that touch the engagement process, understand the importance of getting it right and the risks involved of getting it wrong.
With HMRC carrying out more employer compliance audits and more information digitally available at their fingertips, now is the time to stand back and assess your organisations risks. Potential risks arise from both engaging or being involved in the supply of any non-payroll labour which could involve self-employed individuals, consultants, those that invoice, officeholder roles, management charges, honorarium, executive and non- executive directors.