Legitimising off-payroll workers
Off-payroll workers (AKA personal service workers) are not moon-lighting benefit scroungers, they are part of the outsourcing process that ensures Government Departments and private employers can manage services effeciently.
But the rules that govern the status of those who provide services in person are under intense scrutiny as the Government tries to include them in the mainstream of taxation, welfare and even funded pensions.
Earlier this week, HMRC published a paper, which at some length explains how those supplying personal services to Government , either through a limited company or as a sole trader are to be treated for tax purposes.
The upshot for auto-enrolment appears to be
- that limited companies will have to stage
- that sole directors will not have to enrol themselves
- that those who provide services through them are within the scope of auto-enrolment.
It’s a classic case of lawyers getting ahead of practitioners. Those who run the companies as sole Directors are assumed to be self-sufficient in their pension provision. If they are anything like the self-employed, they have simply side-stepped conventional pension planning and are not self-sufficient at all.
Those personal services workers who regularly submit invoices for work done through these limited companies or directly to Government will now be considered the responsibility of whoever has commissioned this work who will be responsible for the deduction of tax and national insurance from any payment made.
If I have understood correctly, this should also mean a deduction to a pension provider as part of the employers duties under auto-enrolment.
Legal framework in place, but no means to make it work
But , as yet, there is no mechanism for clearing money to providers, let alone clearing money off to repay student loans or court orders or any other duties that fall within the scope of a standard payroll.
It would seem that a new clearance system is needed but it is unclear- at least to me – how this might work.
Alex Rowson
Talking with industry expert Alex Rowson yesterday, there is clearly a need for such payments to be encoded with instructions attaching. So were I to be asked for money to pay my gardener, the payment would only arrive in my gardener’s bank account after tax and national insurance and pension payments had been siphoned off and cleared to the appropriate authorities.
But who encodes the payment instruction , who does the clearing and how is the money received by organisations still struggling to take a direct payment from a standard payroll? (the pension provider).
There is no technology in place that can do this, and though Alex and I discussed how automated payments could work (in theory), there seems to be a huge gap between theory and practice.
Latent technology?
This mechanism seems a prime target for blockchain technology. If we can agree a series of standards that enable any payment to reference the individual’s circumstance, then the process of divying up the payments , forwarding them to the various authorities and for those authorities to recognise what these payments are, then we are in business.
It is a case of waiting for the technology to catch up with the legal obligation. But right now, those who sit outside the payroll process and have no accountants to set them up as limited companies are neither getting the advantages of incorporation or the perks of a personal service worker (including the auto-enrolment payment).
The moral dimension
Kate Upcraft, who is always right in matters of these kind, has written to me with her moral dilemma.
Kate Upcraft
my worry is this muddies the water even more as we have a population of workers who have a Ltd company so have their own AE obligations (or more likely are exempt as single directors) and a population of workers who haven’t an accountant so haven’t incorporated who quite probably should be within scope.
I keep saying this, but the answers to the problems of inclusion within auto-enrolment lie with more advanced technology and not with legislation. The legislation makes it clear what obligations fall on who in the public sector. It is hard to see that the same obligations won’t fall on the private sector.
But there is no mechanism for collecting these payments at source and it looks as if HMRC will – till technology catches up- have to wait for collection of monies from self-employed assessment, however they might wish the technology existed!
The same can be said for auto-enrolment. It would be good to see an estimate from HMRC or ONS of what percentage of those currently not in scope for auto-enrolment will become in scope when their status is properly defined (both in the public and private sector).
I suspect that the number of genuinely independent self-employed is considerably smaller than are technically enjoying that status and that most self-employed are in fact workers and should be within auto-enrolment.
More for Taylor to chew on
I hope that when Matthew Taylor kicks off his review of the gig-economy , he quickly climbs down the ladder of abstraction and gets to talk with those (like Alex and Kate) who worry about this stuff for a living.
I hope that as well as talking with the Treasury and HMRC, Taylor talks with those in the DWP commissioned to review AE
For the job of the DWP when they review auto-enrolment next year, will be to work out not what the law should be (we know that already) but how to enforce it.
That is a whole new ball game and one that appears, for now, to be beyond payroll. Practitioners have been set a challenge , just how accountants, payroll experts and pension providers will rise to it, is as clear as mud!
That HMRC paper can be found at
in case the link above isn’t working.
