Draft Employment Status Manual Updates Draft Employment Status Manual Updates
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    Default Draft Employment Status Manual Updates


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    Yup, funny blunder. Yup, some useful info.

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    ESM0558 - Employment Status Manual - HMRC internal manual - GOV.UK

    Guide to determining status: fact finding/evidence gathering

    The notes below are intended to help you to establish the facts at an interview. They must not be issued to the engager, worker or adviser as a questionnaire to be completed. They are not an exhaustive list of issues to be considered in every case. Not all of the issues will apply in every case and some cases will call for further or different lines of questioning. They are intended as a source of ideas only and should therefore be used flexibly and thoughtfully. Some of the issues are not self-contained and will be evidence for more than one status pointer.

    The preferred option is to ask general open questions which themselves lead to the answers on some of the issues listed below.

    The facts should normally be obtained from both the person providing the work (referred to below as the ‘engager’) and the worker. Do not ask the engager or worker questions about each other that they cannot be expected to know.

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    The information is available to be copied under the Open Government License for public sector information: Open Government Licence

    Included in that is the following:
    You are encouraged to use and re-use the Information that is available under this licence freely and flexibly, with only a few conditions.

    Using Information under this licence
    Use of copyright and database right material expressly made available under this licence (the 'Information') indicates your acceptance of the terms and conditions below.

    The Licensor grants you a worldwide, royalty-free, perpetual, non-exclusive licence to use the Information subject to the conditions below.

    This licence does not affect your freedom under fair dealing or fair use or any other copyright or database right exceptions and limitations.

    You are free to:
    copy, publish, distribute and transmit the Information;
    adapt the Information;
    exploit the Information commercially and non-commercially for example, by combining it with other Information, or by including it in your own product or application.
    You must (where you do any of the above):
    acknowledge the source of the Information in your product or application by including or linking to any attribution statement specified by the Information Provider(s) and, where possible, provide a link to this licence;
    If the Information Provider does not provide a specific attribution statement, you must use the following:

    Contains public sector information licensed under the Open Government Licence v3.0.

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    ESM10002 - Employment Status Manual - HMRC internal manual - GOV.UK

    DRAFT Off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2020): basic principles: key terms for the off-payroll working legislation
    This is a draft and may be subject to change

    Chain payment (NIC) – A payment or money’s worth passed down the contractual chain that can reasonably be taken to be for the worker’s services to the client. Benefits will be subject to Class 1A NICs in the same way as normal employees.

    Chain payment (Tax) – A payment, money’s worth or any other benefit passed down the contractual chain that can reasonably be taken to be for the worker’s services to the client.

    Client – The person in receipt of the worker’s services. This person is sometimes referred to as the ‘end-client’.

    Contractual chain – The chain of persons contracting with one another which the chain payment flows through. It starts with the person in receipt of the worker’s services (the client) and ends with the worker’s intermediary.

    Deemed direct earnings (NICs) - The payment which is treated as earnings from an employment for NICs purposes from 6 April 2020 onwards.

    Deemed direct payment (Tax) - The payment which is treated as earnings from an employment for tax purposes from 6 April 2020 onwards.

    NOTE – For the rest of this guidance, where we refer to “deemed direct payment” we also include “deemed direct earnings” unless otherwise stated.

    Deemed employer – This is the person treated as making the deemed direct payment to the worker. It is the person responsible for the deduction of tax, NICs and apprenticeship levy, and paying these to HMRC. This may be the same person as the fee-payer, but it may be another person in the contractual chain if the fee-payer is not a qualifying person (see ESM10017).

    End-of-line remuneration - A payment or benefit paid to the worker by their intermediary.

    Fee-payer – This is the person who sits immediately above the lowest (see ESM10017)

    Make (NIC) – The fee-payer is treated as making a chain payment where a transfer that is money’s worth is made.

    Make (PAYE) – The fee-payer is treated as making a chain payment where a transfer that is money’s worth is made, or a benefit other than a payment or money’s worth is provided.

    Medium/large-sized non-public sector organisation – an organisation that is not a public authority as defined in section 61L ITEPA 2003 and not small as defined by sections 60A – 60G ITEPA 2003.

    Public authority – A public authority as defined by the Freedom of Information Act 2000 (FOIA), a body specified in section 23(3) of the Freedom of Information Act 2000, a Scottish public authority as defined by the Freedom of Information (Scotland) Act 2002 (FOISA), the Corporate Officer of the House of Commons, the Corporate Office of the House of Lords, the National Assembly for Wales Commission or the Northern Ireland Assembly Commission (see ESM10005).

    Status Determination Statement (SDS) - the statement the client makes to state whether or not the worker would be either an employee or an office holder if they were engaged directly by the client. For the SDS to be valid the client must state their conclusion, with reasons, and take reasonable care in reaching that conclusion.

    Worker – The individual personally providing their services

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    ESM10006 - Employment Status Manual - HMRC internal manual - GOV.UK

    DRAFT Off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2020): basic principles: meaning of medium or large sized non-public sector organisation
    This is a draft and may be subject to change

    Sections 60A; 60B; 60C; 60D; 60E: 60F of Chapter 8 Part 2 ITEPA 2003

    Regulation 5A Social Security Contributions (Intermediaries) Regulations 2000

    A client must consider the off payroll working legislation where they are either a public authority (ESM10005) or they are a medium or large non-public sector organisation (this includes third sector organisations such as charities). Small non-public sector organisations do not need to consider the rules. Agencies within the contractual chain do not need to consider criteria around size, this only applies to clients. So small agencies can be affected by the rules.

    Corporate entities (companies; limited liability partnerships; overseas companies and unregistered companies):

    Qualifying criteria for the Small Companies Regime can be found from s382 Companies Act 2006 onwards. A corporate entity will be medium or large if it meets at least 2 of the following criteria for 2 consecutive years:

    Turnover of more than £10.2m
    A balance sheet total (assets) of more than £5.1m
    An average of more than 50 employees (see s382 Companies Act 2006)
    Balance sheet total means the total amounts shown as assets in the company’s balance sheet before deducting any liabilities.

    When considering the qualifying criteria, a corporate entity must look at the last financial year for which the period for filing its accounts and reports ended before the beginning of the tax year to determine whether the tests are met.

    For example, for tax year 2020/21. A private corporate entity’s financial year ends on 31 March 2019. The period for filing ends on 31 December 2019. This period ends prior to 6 April 2020 so this year will be included in considerations regarding size.

    A corporate entity will qualify as small in its first financial year following incorporation providing the period for filing for that year does not end before the relevant tax year.

    A corporate entity would only be classed as medium or large once it meets the criteria to be medium or large for 2 consecutive years.

    Certain companies are excluded from the Small Companies Regime by s384 Companies Act 2006, so they would not be considered small for the purposes of Chapter 10.

    To note, limited liability partnerships, overseas companies and unregistered companies are classed as “relevant undertakings” in the legislation. The rules for corporate entities apply equally to entities classed as relevant undertakings.

    Non-corporate entities:

    Other undertakings

    Other undertakings will be medium or large if their turnover is more than £10.2m for the last financial year ending at least 9 months prior to the beginning of the tax year. Other undertakings will qualify as small in their first financial year providing it ends less than 9 months prior to the beginning of the tax year.

    Other persons

    Other persons will be medium or large if their turnover is more than £10.2m for the last calendar year prior to the beginning of the tax year.

    A non-corporate entity is only considering 1 year when determining if the condition is met. The entity should consider its size on an annual basis.

    Where a client is part of a group of companies or connected to other entities there are special rules for determining their size (see ESM10007 and ESM10008).

    Where a client is part of a joint venture see ESM10009.

    Charities do not need to take into account donations when calculating turnover for the purposes of determining their size for the off-payroll working rules.

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    ESM10007 - Employment Status Manual - HMRC internal manual - GOV.UK

    DRAFT off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2020): basic principles: meaning of medium or large sized non-public sector organisations: groups
    This is a draft and may be subject to change

    Sections 60A; 60B; 60C; 60D; 60E: 60F of Chapter 8 Part 2 ITEPA 2003

    Regulation 5A Social Security Contributions (Intermediaries) Regulations 2000

    A group’s 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. Therefore, 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. For example, in a medium sized group, all the companies within it will be medium sized for the purposes of the off-payroll working rules.

    Figures from all members of the group are included irrespective of whether group members are resident in the UK or not, so the worldwide group is considered. Please see ESM10006 for the qualifying criteria.

    These group rules also apply to overseas companies; limited liability partnerships and unregistered companies who are part of a group.

    The person in receipt of a worker’s services within the group is the person who must make the status determination as well as meeting other client responsibilities.

    For franchises, depending upon the structure of the business you may need to consider the group rules.

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    ESM10008 - Employment Status Manual - HMRC internal manual - GOV.UK

    DRAFT Off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2020): basic principles: meaning of medium or large sized: connected persons
    This is a draft and may be subject to change

    Sections 60A; 60B; 60C; 60D; 60E: 60F of Chapter 8 Part 2 ITEPA 2003

    Regulation 5A Social Security Contributions (Intermediaries) Regulations 2000

    Where a person is connected to another person, to determine their turnover for that limb of the size test, they must determine their size by adding their turnover to the turnover of all persons they are connected to. For corporate entities, where their turnover exceeds £10.2m and then other relevant limbs of the size test are met (ESM10006) they will be considered medium/large for the purposes of the off-payroll legislation. For non-corporate entities, if aggregated turnover alone exceeds £10.2m they will be considered medium or large for the purposes of the off-payroll legislation.

    To determine its turnover, a corporate entity (companies, limited liability partnerships, overseas companies and unregistered companies) must look at the last financial year before the tax year concerned for which the period for filing its accounts and returns has ended to determine its turnover. For example, an entity has a financial year ending 31 March. For the 2020/21 tax year, the entity would look at the financial year ending 31 March 2019 with a filing date of 31 December 2019.

    For those non-corporate entities with a financial year (known as “other undertakings” in the legislation), the relevant financial year for determining their turnover is the one ending at least 9 months before the beginning of the tax year concerned. For example, a non-corporate entity has a financial year ended 30 June. Nine months prior to the commencement of the 2020/21 tax year is 5 July 2019. As the entity has a financial year ended prior to this date it can use the period 1 July 2018 to 30 June 2019 when considering the connected persons rules.

    Non-corporate entities without a financial year (known as “other persons” in the legislation - such as individuals performing a trade) will determine their turnover by reference to the calendar year ending before the tax year concerned.

    Where a corporate entity (companies, limited liability partnerships, overseas companies and unregistered companies) is a member of a group, they do not need to consider the connected persons rules. Instead they will determine their size by reference to the rules in ESM10007.

    A person will determine whether they’re connected to another person by reference to the rules in section 993 Income Tax Act 2007 (see PTM027000).

    For franchises, depending upon the structure of the business you may need to consider the connected persons rules.

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    ESM10010 - Employment Status Manual - HMRC internal manual - GOV.UK

    DRAFT Off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2020): basic principles: contracted-out services
    This is a draft and may be subject to change

    The off-payroll working rules place obligations on the worker’s client. The client is the person who the worker performs services for. In most cases it will be obvious who the client is. Where there is uncertainty as to who the true client is, consideration should be given to the nature of the relevant contracts.

    Where a person enters into a contract with an intermediary for the supply of a worker, they will be the client, unless they are an intermediary themselves. For example, where an employment agency sources a worker through another employment agency, they will be an intermediary.

    Where a person enters into a contract for a fully contracted out service, they will not be the client. This is because the worker’s true client is the party who the work has been contracted out to; the ‘service provider’. The service provider is the party most akin to the worker’s employer. The person receiving the fully contracted out service has not meaningfully entered into a contract for the supply of the worker.

    A person who receives a fully contracted out service does not need to apply the off-payroll legislation, as they will be above the client in the contractual chain and will have no obligations.

    Whether a contract is for a fully contracted out service is a question of fact, based upon the commercial reality of the arrangements. Care should be taken to ensure that a labour supply contract has not simply been re-labelled as a managed service. For example, labelling a contract as a contracted out service or a ‘statement of work’ will not prevent the off-payroll working rules from applying, and the reality of the arrangements should be considered.

    Relevant factors will include:

    1. The nature of the businesses.

    Where the type of service provided by the worker aligns closely with the nature of a business (or a department within a business), this will be an indicator that the business is the client. For example, a cook working for a catering firm.

    2. The nature of the service provider’s contract.

    Where a service has been fully contracted out, the service provider will usually have responsibility for agreeing the specification of the service and ensuring the quality of the service. A fully contracted out service will often involve the provision of goods and material, as well as labour.

    A service provider will usually have an opportunity for profit, beyond taking a percentage of the worker’s fee, where a service is fully contracted out.

    3. The relationship between the worker, the service provider and their customer.

    Consideration should be given to who the worker personally provides their services to. This is likely to be the person most akin to the worker’s employer. The extent to which the service provider or their customer control the worker, benefit from the provision of their services, bear risk, and integrate the worker into their business will all be relevant.

    When having regard to the factors, the actual working practices must be taken into account as well as contractual terms. Contractual terms alone will not decide the matter, they must also be followed in practice to have weight in making a decision.

    Note - The Contracted Out Services chapter of the VAT Manual (VATGPB9000) is not relevant to the off payroll legislation.

    Examples

    1 – Outside the scope of the legislation

    Gym Supplies Ltd, a large business, contracts with Payroll PLC, who are also large, to build and deliver a payroll computer system and provide online access to an agreed standard for £10 million per year for 2 years. The number of workers needed to deliver the project, their cost and the risks are determined and borne by Payroll PLC, and Gym Supplies Ltd are not sent workers. Workers provide their services through PSCs. Gym Supplies Ltd are not aware of how many workers Payroll PLC engages and that is not part of the contract.

    From time to time, Payroll PLC’s workers need to discuss changes to the system and these people are given security passes, but they only report to Payroll PLC and carry out tasks for them and not for Gym Supplies Ltd.

    In this example Gym Supplies Ltd have contracted-out a whole service. Workers are not personally providing their services to Gym Supplies Ltd. Payroll PLC has responsibility for delivering the project and controls the work performed by the workers. Payroll PLC are the party most akin to the employer. Payroll PLC are directly benefitting from the workers’ labour. Gym Supplies Ltd are benefitting from the provision of a services provided by Payroll PLC. Payroll PLC will need to determine the status of the workers, issue a status determination statement (SDS) to the workers and are responsible for PAYE if the engagements are determined inside the rules.

    2 – Within the scope of the legislation

    Golf Academy Ltd, a medium-sized company, requires some advice on how best to design a new HR system to integrate with an outsourced payroll system. Individuals will work mainly at the Golf Academy Ltd’s office and be managed by, and take instructions from, the Golf Academy Ltd’s implementation project manager. X-Resourcing Ltd supplies 15 consultants for the duration of the project who work through their own PSC’s. Golf Academy Ltd had no influence over which workers are sent by X-Resourcing Ltd and don’t know who these workers are prior to the start of the project.

    The workers report, and personally provide their services, to Golf Academy Ltd. The project is managed by Golf Academy Ltd and they retain responsibility for it. Golf Academy Ltd is most akin to the employer. Irrespective of Golf Academy Ltd not knowing who the workers were prior to the start of the project, it is benefitting from the provision of the labour rather than the provision of a service. Golf Academy Ltd should issue SDS’s. X-Resourcing Ltd is the fee-payer and will also be affected by the rules.

    3 – Outside the scope of the legislation

    A sports ground contracts out its canteen, concession and catering facilities to Snacks Ltd, a medium sized catering company. The facilities are all on the sports ground’s premises but Snacks Ltd decide the opening hours, staffing levels, price structure, range of goods for sale and provide monthly reports to the sports ground on these areas. Snacks Ltd recruit cooks, pay all these workers through models of their choice and arrange shifts and working hours as well as agreeing rates of pay and salaries. Workers wear branded clothing showing the Snacks Ltd logo but are also required to wear photographic sports ground ID, so the sports ground need to know who is working for Snacks Ltd.

    This is a contracted-out service because all control is devolved from the sports ground to Snacks Ltd who are responsible for all staffing issues. There is no requirement for the workers to provide their personal service to the sports ground, it is provided to Snacks Ltd. Snacks Ltd is benefitting from the provision of the workers’ labour and the services of the workers align closely with the nature of Snacks Ltd’s business. There are a range of factors present which demonstrate that Snacks Ltd is most akin to the employer such as setting staffing levels and pricing structure, in addition to control and personal service. If the workers operate through intermediaries, Snacks Ltd will have to determine the workers’ status under the off-payroll working rules and issue SDS’s and if workers are within the rules, operate PAYE.

    4 – Within the scope of the legislation

    A large business recruits IT contractors through IT Solutions Ltd, its central supplier, to develop an app enabling users to access and control their personal information centrally.

    Workers all operate through PSCs contracting with IT Solutions Ltd rather than contracting directly with the large business. The large business has their own employees working on the same project to (amongst other things) provide technical guidance, arrange regular testing workshops and sign off the project at appropriate stage gates. The project service manager, who signs off the contract and who all workers report to, is an employee of the large business. Even though the IT workers all apply their own skills to build and develop the app within the required parameters, they remain under the control of the project service manager. The workers use their own equipment (laptops recording devices etc) but work on the large business’ premises. They require ID to access the premises, but email addresses all indicate that the workers are part of IT Solutions Ltd rather than the large business itself. The fees payable to the worker(s) are negotiated between the worker and IT Solutions Ltd.

    This is not a contracted-out service. Workers may not be contracted directly to the large business, but they are personally providing their services to them and are under its ultimate control. They will remain under the control of the large business for the duration of the contract. The large business retains ownership of the project, is ensuring quality and is contracting for the supply of workers rather than the production of a product. When considering the range of factors present the large business is more akin to the employer. The large business is benefitting from the provision of the workers’ labour so it must determine the workers’ status under the off-payroll working rules and should issue an SDS for each worker. IT Solutions Ltd is the fee-payer and so is also affected by the rules.

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