The Treasury has concluded its annual evaluation of Departments’ compliance with the rules governing off-payroll appointments in central Government for 2014-15. Specific rules implemented in 2012 require Departments’ most senior staff to be on payroll, and Departments now have stronger powers to seek assurance in relation to the tax arrangements of their long-term, high-paid contractors who are off-payroll. These rules do not cover other off-payroll engagements, which will include a broader category of staff and public sector organisations.
Below board-level off-payroll engagements
These rules apply where a new off-payroll engagement is for more than six months with a daily rate above £220. All engagements from 23 August 2012 meeting these criteria must include contractual provisions that allow the Department to seek assurance that the worker is either not a disguised employee, or, if they are, that they are paying the right amount of tax and national insurance contributions. If assurance is not provided the contract must be terminated. For any individuals where their engagement has either been terminated, ended as a result of the assurance process, or ended after assurance was sought but before it was received, Departments have been asked to provide personal details of the worker to HMRC for further investigation.
In accordance with the guidance, Departments adopt a risk-based approach in deciding which contractors to seek formal assurance from. In 2014-15, Departments sought assurance on the tax affairs of 3,034 of their contractors and informed the Treasury that they received satisfactory assurances from 2,530 of these engagements. In the remaining 504 cases, contracts were either terminated or came to an end before assurance was received. Referrals to HMRC occurred in all relevant cases across Government.
The review found that not all relevant contracts contained the clause required to allow Departments to seek assurance. At the time of the review period the rules had been in place for over two years, and it is reasonable to expect Departments to have these clauses in place. Departments can expect to be fined if breaches of this nature are found in the next review.
Board-level and senior appointments
The rules also specify that board-level appointments and those with significant financial responsibility should be on the payroll of the Department or other employing body, unless there are genuinely exceptional circumstances. Any such exceptions should not exist for longer than six months.
The review has uncovered two cases where there have been breaches of these rules. The Ministry of Defence and Department for Communities and Local Government have brought to my attention instances where a board member or senior official with significant financial responsibility at their arm’s length bodies remained off-payroll for longer than six months. Steps have been taken to resolve these breaches and, as the value of the salaries in question was considerably below the £58,200 annual rate at which Treasury monitors non-board level appointments, I have decided not to impose sanctions this time.
As in previous years, the review found instances where off-payroll workers at board level or with significant financial responsibility have been seconded to the Department from another organisation. Where the full value of payments from the Department to the individual are put through the payroll of the seconding organisation this has not been treated as a breach of the Treasury rules.
The Treasury will continue to monitor Department’s compliance with these rules and will conduct a similar review for the 2015-16 financial year. The Treasury is keen to increase compliance both with the Treasury rules, and also with the ‘intermediaries legislation’—the tax rules for disguised employees.
While not directly covered by this review, the ‘intermediaries legislation’ will apply to some of the engagements covered by the Treasury rules, and the Government’s overall assessment is that compliance with this legislation, across the contractor population as a whole, is only one in 10. A separate consultation published on 26 May 2016 proposed moving the responsibility and liability for applying the intermediaries rules from the individual to the public sector engager or agency. The government will announce the outcome of that consultation shortly.
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