{"id":577,"date":"2021-03-17T11:57:58","date_gmt":"2021-03-17T11:57:58","guid":{"rendered":"https:\/\/david-kirk.co.uk\/?p=577"},"modified":"2021-03-17T13:48:10","modified_gmt":"2021-03-17T13:48:10","slug":"the-hmrc-webinar-with-26-errors-in-it","status":"publish","type":"post","link":"https:\/\/david-kirk.co.uk\/?p=577","title":{"rendered":"The HMRC webinar with 25 errors in it"},"content":{"rendered":"\n

By David Kirk<\/em><\/p>\n\n\n\n

Are you au fait <\/em>with all the new IR35 law changes that are coming in on April 6th<\/sup>?\u00a0 HMRC aren\u2019t.\u00a0 I watched a webinar of theirs on 5th<\/sup> March and was aghast at the amount of misleading information in it, some of which was just downright wrong.<\/p>\n\n\n\n

See for yourself: you can access it here<\/a>.  It\u2019s aimed at the \u2018fee-payers\u2019 \u2013 those normally responsible for operating PAYE and deducting and paying over National Insurance contributions, which will typically be agencies.<\/p>\n\n\n\n

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Let\u2019s start with the webinar itself:

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  1. At 5:46.<\/em>\u00a0 \u2018If the client is a public sector organisation, or a medium- or large-sized non-public sector organisation, the client will be responsible for determining employment status for tax for these engagements.\u2019\u00a0 Misleading.<\/strong>\u00a0 This gives the impression that if the client makes a mistake, it is the client that will be saddled with the bill.\u00a0 This is not so: if a client issues a status determination statement (SDS) saying that someone is outside the off-payroll rules and HMRC disagree, it is the agency who will pay.\u00a0 The client has a role in this and can easily find itself with an unexpected liability if it fails to take reasonable care, but that is not the same as carrying responsibility for getting the status decision right.


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  2. At 8:08.\u00a0 <\/em>\u2018Now contractors who work through their own PSC and provide their services to public sector organisation, or medium- or large sized non-public sector organisations, will not be responsible for deciding the employment status for tax purposes of the engagement.\u00a0 It is the client\u2019s responsibility to decide.\u2019\u00a0 Misleading.\u00a0 <\/strong>Same objection as no. 1.\u00a0 It gives the impression that the fee-payer cannot overrule the client.

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  3. At 15:35<\/em>.\u00a0 \u2018It is the deemed employer that holds the responsibility for deducting the tax and National Insurance from any payment going to the contractor\u2019s PSC and paying these over to HMRC.\u2019\u00a0 Omits something important, and wrong in the context given.\u00a0 <\/strong>The requirement is to deducttax and NICs from the payment made by the deemed employer, which will not necessarily be the same payment as that made to the contractor\u2019s PSC.\u00a0 This is therefore true where the deemedemployer is the fee-payer, but not where it is some other party such as the client or the lowest qualifying person in the chain, which is what this passage was talking about.

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  4. At 23<\/em>:06.<\/em>\u00a0 \u2018Once the client has decided whether or not the rules do apply, they must set out that decision in a status determination statement, or SDS.\u2019\u00a0 Wrong.<\/strong>\u00a0 There is no legal requirement for this, and where the client pays the intermediary directly there are no legal consequences for failure to do so.

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  5. At 27<\/em>:55.\u00a0 <\/em>\u2018For an SDS to be valid, it must state whether or not the contractor would be a deemed employee for tax and National Insurance purposes if they were directly engaged by the client.\u2019\u00a0 Wrong.<\/strong>\u00a0 The law (Income Tax (Earnings and Pensions) Act 2003, section 61NA(1)) is very prescriptive here, and requires an SDS to state \u2018that the client has concluded that the condition in 61M(1)(d) is met in the case of an engagement\u2019 (or not met, as the case may be).\u00a0 There is an equivalent for National Insurance.\u00a0 The condition referred to is that \u2018if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client\u2019.\u00a0 This is only one component in making someone a deemed employee.\u00a0 This matters because one can expect agencies who are under investigation by HMRC to look for procedural reasons to pass any bills back to their clients, and saying that an SDS is not valid ought to be a highly effective way of doing that.

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  6. At 28:49.<\/em>\u00a0 \u2018Agencies should expect to see outputs from HMRC\u2019s Check Employee Status for Tax tool or other commercially available tools.\u2019\u00a0 Wrong and omits important information.\u00a0 <\/strong>There is absolutely no reason whyemployment status needs to be determined using a tool.\u00a0 Judges, who are the final arbiters of this, do not use one, and it is perfectly possible to come to a conclusion by looking at all the status tests and seeing where a particular engagement fits in.\u00a0 Why else do HMRC have an Employment Status Manual over 500 pages long?\u00a0 And what do you do if you are a CEST user and it says that it is unable to determine he status, which it does in about 20% of cases?\u00a0 This section also fails to say that the SDS must be given by the client<\/em> to the worker<\/em>,which is a legal requirement: if it comes from a third party tool it must be clear that it is being issued on the client\u2019s behalf.
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  7. At 29:54.<\/em>\u00a0 \u2018If the SDS states that the off-payroll working rules don\u2019t apply there is no deemed employment and payments should be made to the PSC gross.\u00a0 Wrong.<\/strong>\u00a0 This does not follow \u2013 the client might have come to the wrong conclusion in preparing the SDS.

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  8. At 30:10. \u00a0<\/em>\u2018The legislation requires clients to have a status disagreement process in place to deal with SDS disputes.\u2019\u00a0 Misleading.\u00a0 <\/strong>There is no requirement to have a process in place, merely to consider the worker\u2019s representations when there is a dispute and decide again, which may never happen, or happen very rarely.\u00a0 This can be done ad hoc<\/em>, and bearing in mind the arcane nature of the disputes that are likely to arise that may well be the best way of dealing with things.

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  9. At 39:30<\/em>.\u00a0 \u2018The client therefore pays the agency \u00a31,400, which includes the \u00a31,000 weekly rate, plus the \u00a3200 VAT and the \u00a3200 fees.\u2019\u00a0 Wrong.<\/strong>\u00a0 This one is a shocker coming from HMRC: in the example that they give the agency\u2019s fees would be subject to 20% VAT as well, so the client would pay the agency \u00a31,440.

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  10. At 39:47.<\/em>\u00a0 The slide says at this point that the agency \u2018Keeps \u00a3200 fee\u2019.\u00a0 Omits important information.<\/strong>\u00a0 This \u00a3200 fee includes the employer\u2019s National Insurance that the agency has to pay, which will come to more than half of it (\u00a3113 in this example).\u00a0 The speaker does say at 40:05 that the agency will need to pay any \u2018secondary National Insurance liabilities\u2019, but most agencies will not be familiar with the \u2018secondary\u2019 part of the terminology and are therefore likely to fail to pick this up.

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  11. At 45:40.<\/em>\u00a0 \u2018Any amount treated as deemed employment earnings count as statutory payments for statutory payments purposes, so long as the contractor takes these payments as earnings from the PSC through Pay As You Earn.\u2019\u00a0 Misleading.<\/strong>\u00a0 What is meant there is that the payments are taken as earnings through the Real Time Information (\u2018RTI\u2019) system, into which PAYE payments are also put, but these payments will not be paid \u2018through PAYE\u2019 as the PAYE will have been deducted at an earlier stage.

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  12. Is that PAYE tax and NIs or NI Company contributions?\u00a0 Answer: <\/em>On payment that falls inside the OPW rules a deemed employer will need to deduct PAYE tax, employees\u2019 and employer\u2019s NIC and, if applicable, Apprenticeship Levy.\u00a0 Misleading.\u00a0 <\/strong>Employer\u2019s NIC andthe Apprenticeship Levyshould be paid in addition, not deducted.\u00a0 It is illegal to deduct Employer\u2019s NICs before paying the PSC.


    At the beginning of the webinar there is a reference to questions and answers.\u00a0 These were only available to those who watched live but I downloaded them (see     here<\/a> for the full text) and can say that there are quite a number with problematic answers:


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  13. How PSC shows payment received after IR35 deduction in PSC accounts ?\u00a0 Answer:<\/em> Since the deemed payment amounts have already been subject to tax and NICs, no further tax is due on those amounts or this would be double taxation. \u00a0Avoiding double taxation can be achieved in different ways depending on whether income from off-payroll working arrangements is recorded gross or net within the PSC\u2019s accounts and whether the money is taken out of the PSC as payroll payments or dividends. \u00a0Please see page ESM10035 of our employment status guidance on GOV.UK for more detail on this: ESM10035 – Employment Status Manual – HMRC internal manual – GOV.UK (www.gov.uk<\/a>).\u00a0 Doesn\u2019t answer the question.<\/strong>\u00a0 It wasn\u2019t about tax: it was about how to show things in the accounts.\u00a0 Also it is highly doubtful that showing the receipt net in the accounts complies with s. 474 of the Companies Act 2006.

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  14. If we engage a worker through an agency do we have to complete an SDS. \u00a0I\u2019m thinking that the agency would be responsible for PAYE is that correct? \u00a0Thanks.\u00a0 Answer:<\/em> Where a worker is contracted directly to an agency (i.e. no intermediary) this would fall under the agency regulations. \u00a0Where the contractor is engaged by the agency via their own intermediary then the off-payroll rules will need to be considered. \u00a0An SDS will only be required for off-payroll engagements.\u00a0 Doesn\u2019t answer the question.<\/strong>\u00a0 It should also say that the agency regulations require the agency to operate PAYE where they apply.

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  15. If the client already operates payroll and we deem that the contractor falls under IR35 do we just have to add the contractor to our normal payroll and run on a monthly basis?\u00a0 Answer:<\/em> If the agency already deducts PAYE\/NIC i.e. under agency regulation, then there would be no requirement to consider the OPW rules. It is important to understand what is happening in the contractual chain to determine if you have any responsibilities under the OPW rules.\u00a0 Wrong.\u00a0 <\/strong>Presuming that this is from an agency and there is no PSC involved (which are both likely given the tenor of the question), the answer is that it has to consider the supervision, direction and control test not the normal employment status test, and should tell the client that none of the conditions in s. 61N apply \u2013 that ought to be enough to get the client not to issue an SDS.

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  16. If there is no agency involved then the client must have contracted with the PSC. In this case does the client have to issue SDS to both the contractor and the PSC?\u00a0 Answer:<\/em> If there is no agency in the chain then the client is only required to send the SDS to the contractor.\u00a0 Wrong.<\/strong>\u00a0 There is no requirement to issue an SDS, and in this instance no legal consequence for the client in failing to do so.

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  17. Where is it documented, in Law, the definition for PSC please?\u00a0 Answer:<\/em> For the off-payroll working rules to apply, an intermediary can be a limited company, a partnership or an individual. Page ESM10003 of our Employment Status Manual guidance on GOV.UK goes into more detail about how a limited company or PSC may be within the scope of the rules: ESM10003 – Employment Status Manual – HMRC internal manual – GOV.UK,\u00a0 Doesn\u2019t answer the question.<\/strong>\u00a0 There is no legal definition of a PSC in law; one is basically looking at the conditions in s. 61O ITEPA applying, although they do go slightly wider than people\u2019s conventional understanding of a PSC.\u00a0 They can apply when the worker or his associates has a shareholding in the intermediary, however small.

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  18. I have seen that the deemed employer can charge the Employer\u2019s NI back to the PSC – is this correct please?\u00a0 Answer:<\/em> Employer\u2019s NIC is the responsibility of the deemed employer rather than the contractor.\u00a0 Omits important information.<\/strong>\u00a0 For the deemed employer to charge employer\u2019s NICs back to the PSC would in most circumstances be illegal.

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  19. Why is the Limited Company in the supply chain?\u00a0 Is it deemed that Companies will continue to operate even if their operatives are deemed inside IR35?\u00a0 Answer:<\/em> I don’t fully understand your question I\u2019m afraid. \u00a0The Limited Company as in the PSC?\u00a0 Doesn\u2019t answer the question.<\/strong>\u00a0 It should be obvious that the limited company is a reference to the PSC, and the answer is that companies can continue to operate even if inside IR35.

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  20. If the client employs a company to administer its payroll, who is then responsible for determinations?\u00a0 Answer:<\/em> It is possible that a company may outsource the determination process, however the need for reasonable care to be taken when making the determinations does not move from the client in these circumstances.\u00a0 Omits important information.<\/strong>\u00a0 It is also important for the client to issue the SDS in the circumstances, otherwise (as with failure to take reasonable care) it could be lumbered with the PAYE liability.

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  21. We have a sister company. We\u2019re not a subsidiary but are connected for Apprenticeship Levy purposes. \u00a0Does this make us Connected for IR35 as well? \u00a0We don\u2019t meet 2 of the 3 criteria for small business if we combine figures from both companies, but do meet 2 of the criteria if just consider our company figures only. I think this means we are not considered a small business for IR35. I have asked HMRC but not a clear answer from them.\u00a0 Answer:<\/em> https:\/\/www.gov.uk\/hmrc-internal-manuals\/employment-status-manual\/esm10007 contains information regarding groups. \u00a0A group\u2019s size is determined by the size of its parent company. In order to identify the size of a parent company you should aggregate the figures from all members together. \u00a0Therefore, to determine the size of a company within a group, you add together all figures of the members within the group and the outcome will apply to all members. \u00a0Doesn\u2019t answer the question.<\/strong>\u00a0 This looks as though it is about a case where there is no group structure, and the answer is that you have to look at the combined figures for turnover but not for the other two tests.

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  22. In your Deemed Employment – examples 2 & 3 the offshore agency\u2019s margin is being subject to PAYE, not just the payment the contractor is entitled to.\u00a0 Is that correct?\u00a0 Answer:<\/em> The agencies margin would not be subject to PAYE\/NIC and would be removed when calculating the chain payment. \u00a0We will check the examples so thank you for pointing this out.\u00a0 Wrong.\u00a0 <\/strong>In these circumstances the agency\u2019s margin is subject to PAYE and NIC deductions.

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  23. If a contractor is engaged via an umbrella and not a PSC, will the employer\u2019s NI and apprentice levy be shown as deductions on the payslip from the payment made from umbrella to the contractor under OPW?\u00a0 Answer:<\/em> In an umbrella company engagement, it will be the responsibility of the umbrella company to make all relevant deductions. \u00a0How it wishes to show this on a payslip is a business\u2019s decision.\u00a0 Wrong.<\/strong>\u00a0 These are not deductions \u2013 they are payments that the umbrella has to make in addition.

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  24. If a client takes reasonable care in an SDS but gets the answer wrong, what are the consequences for the chain?\u00a0 Answer:<\/em> If a client is not already the deemed employer, and has taken reasonable care and fulfilled its other duties (such as issuing the SDS), the responsibility for deducting tax and NICs and paying these to HMRC will not rest with it. \u00a0This is the case even if it turns out that the client got the decision wrong.\u00a0 Omits something important.<\/strong>\u00a0 One of the consequences down the chain is that the fee-payer (usually the agency) will have to pay the Employer\u2019s National Insurance.


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  25. If the end client pay directly to the contractor, will they become deemed employer and deemed fee-payer (rather than the agency in the supply chain)? \u00a0\u00a0Answer:<\/em> If the client contracts directly with the contractor and the contractor is deemed to be inside scope of the OPW rules then the client will also be the deemed employer as they are the first and only qualifying person within the supply chain and will have to operate PAYE on any payments made to the contractor. \u00a0Wrong.\u00a0 <\/strong>It is not clear what the role of the agency is here \u2013 whether it is in the contractual chain but asking the client to pay the worker directly, or whether it is simply introducing the contractor to the agency and charging a fee for that alone, with the client and contractor entering into a direct contract, but the answer assumes the latter and is wrong either way.\u00a0 In the latter case the contract may be an actual contract of employment and the client an actual, rather than a deemed employer, but PAYE then has to be operated on normal principles and not because of eth off-payroll rules.

    <\/li><\/ol>\n\n\n\n

    HMRC\nare doing the webinar again on 15th<\/sup> April.  Why not sign\nup<\/a> and see whether they change all this next\ntime?<\/p>\n","protected":false},"excerpt":{"rendered":"

    By David Kirk Are you au fait with all the new IR35 law changes that are coming in on April 6th?\u00a0 HMRC aren\u2019t.\u00a0 I watched a webinar of theirs on 5th March and was aghast at the amount of misleading information in it, some of which was just downright wrong. See for yourself: you can […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/david-kirk.co.uk\/index.php?rest_route=\/wp\/v2\/posts\/577"}],"collection":[{"href":"https:\/\/david-kirk.co.uk\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/david-kirk.co.uk\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/david-kirk.co.uk\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/david-kirk.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=577"}],"version-history":[{"count":5,"href":"https:\/\/david-kirk.co.uk\/index.php?rest_route=\/wp\/v2\/posts\/577\/revisions"}],"predecessor-version":[{"id":583,"href":"https:\/\/david-kirk.co.uk\/index.php?rest_route=\/wp\/v2\/posts\/577\/revisions\/583"}],"wp:attachment":[{"href":"https:\/\/david-kirk.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=577"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/david-kirk.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=577"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/david-kirk.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=577"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}