ESM10011 - off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: responsibilities of the public authority and medium/large-sized organisation not in the public sector
Sections 61M, 61N and 61NA of Chapter 10, Part 2 ITEPA 2003
Regulations 13, 14 and 14A Social Security Contributions (Intermediaries) Regulations 2000
It is the public authority and medium or large-sized non-public sector client’s responsibility to determine whether an engagement is within the scope of the off-payroll working rules. In order to do this, the client will need to take steps to understand who the parties are in the contractual chain.
The client should then make a status determination and communicate that decision in the form of a Status Determination Statement (‘SDS’ - see ESM10013 for what constitutes a valid SDS) to the worker and any third party it contracts with. There is an incentive for the client to pass the SDS to the worker and any third party it contracts with, because failure to pass on the SDS will result in the client being responsible for the deduction of tax and NICs, and the payment of the apprenticeship levy and paying these to HMRC if due. In addition, HMRC may consider a client’s failure to pass the SDS to the worker and any third party it contracts with as evidence of a lack of reasonable care when calculating any penalties that may be due. See ESM10036 for HMRC’s compliance approach.
If the client is based overseas but has a UK connection through a permanent establishment such as a branch, it is the overseas client who is responsible for discharging its responsibilities (such as issuing a SDS). If the overseas client does not meet its responsibilities and is liable for tax and NICs as a result where the rules apply, HMRC will pursue the tax and NICs through the UK permanent establishment.
Public authorities and medium or large-sized non-public sector clients can use guidance at (ESM0500) when determining whether or not workers are employees or guidance at (ESM2500) when determining whether or not workers are office holders.
Public authorities and medium or large-sized non-public sector clients must make this determination under the 6 April 2021 rules for any payments subject to the 6 April 2021 rules. See commencement provisions in ESM10001 and ESM10001A.
Where the client is also the deemed employer (see ESM10017), it will also be responsible for the operation of PAYE (see ESM10019) and will have to deduct tax and NICs and account for apprenticeship levy and pay these to HMRC.
Where payments are subject to PAYE under Chapter 10 (income tax) / Part 2 (NICs) you do not need to consider the Construction Industry Scheme. For more detail see ESM10004A
If the client does not issue a SDS, the worker can ask why. Under the off-payroll working rules a worker has the right to request confirmation of a client’s size (see ESM10011A). If the reason for not issuing a SDS is because it is a small non-public sector client, the worker’s intermediary should determine whether the off-payroll working rules apply, as per the rules in Chapter 8, Part 2 ITEPA 2003. If the client is not a small, non-public sector client, then any potential liability for tax, NICs and apprenticeship levy under the off-payroll working rules would rest with them as they have not issued a SDS.