Non-compliant off-payroll work situations and determining applicable PAYE taxes
Government Announces New Policy for Accounting Taxes Paid Under Off-Payroll Working Rules
The UK government has announced a new policy that will see a shift in responsibility for accounting for Pay As You Earn (PAYE) and National Insurance Contributions (NIC) in certain labour supply chains. This policy, which will come into effect from 6 April 2024, aims to close the tax gap and protect temporary workers from unexpected tax bills caused by non-compliant umbrella companies.
Under the new legislation, recruitment agencies using umbrella companies will be responsible for accounting for PAYE and Class 1 NIC on payments to workers supplied through umbrella companies. Where no agency is involved, the responsibility falls to the end client business.
The policy has the support of the majority of respondents in the policy development process, and further details can be found on the specified page. The summary of responses and the tax information and impact note provide additional insights into the policy's implications.
The off-payroll working rules determine whether a contractor is taxed as an employee or self-employed for tax purposes, affecting income tax and NIC liabilities. The reforms have shifted compliance responsibility from contractors to clients or agencies, depending on the sector and size of the organization. Umbrella companies, which employ workers on behalf of agencies or end clients, have been a point of non-compliance, and the new legislation aims to ensure PAYE is properly accounted for by those controlling the labour supply chain.
The impact note would emphasize closing the tax gap, protecting workers from unexpected tax liabilities, and improving compliance in the labour market by allocating PAYE accounting responsibilities to parties controlling the supply chain. The change took effect from the 2024-2025 tax year on 6 April 2024, reinforcing tax integrity in off-payroll working arrangements and protecting the Exchequer revenue.
In summary, from 6 April 2024, recruitment agencies (or end clients if no agency) bear responsibility for PAYE and NIC on payments to off-payroll workers engaged through umbrella companies. This policy intends to account for taxes already paid when calculating a deemed employer's liability under the off-payroll working rules, with a key tax impact of improved compliance, protection for workers, and reduced fraudulent tax avoidance. For further reading, a tax information and impact note is available.
Legislation regarding this policy will be included in the next Finance Bill. The government hopes this policy will contribute to its broader goals of growing the economy and creating good jobs by improving compliance and reducing exploitation in the labour supply chain.
- This new policy for accounting taxes paid under off-payroll working rules, announced by the UK government, is a part of the broader business and politics landscape, moving towards more transparency and fairness in the finance sector.
- The announced policy on accounting taxes in certain labour supply chains, set to take effect from 6 April 2024, falls under the category of policy-and-legislation, reflecting the government's efforts to tackle tax evasion, protect workers, and strengthen the general-news narrative around tax reform and the economy.
