Rules around off-payroll worker (OPW) compliance are complex and difficult to manage – and they’ve come right back into focus for local authorities and other public sector bodies recently.
That’s because HMRC has extended its campaign on OPW compliance from central government to other parts of the public sector in recent months. Towards the end of November last year, the tax authority wrote to local authorities saying it wanted to help ensure that their treatment of the issue was correct. Whilst it assured authorities that their enquiry was “not a compliance check”, HMRC nevertheless added that instances of failure to apply the rules correctly “could be subject to penalties.”
A further potential sting in the tail is that, because any errors HMRC picks up could be construed to be ‘prompted disclosures’, any shortcomings may be subject to the higher penalty regime.
We have already seen some eyewatering liabilities in central government – up to £80m – as departments from DEFRA to DWP and the Home Office have reached settlements. It’s clear that, once identified, liabilities can quickly rack up.
With budgets tight and little cash to spare, this is clearly a concern for local authorities. Everyone wants to get it right and no one is deliberately setting out to bend the rules – so what can authorities do to optimise their compliance processes and minimise the possibility of onerous penalties?
The good news is that HMRC seems prepared to be flexible - and has already granted a number of authorities an extension for their replies to the query letter, which asks for information against a number of data points such as the number of individuals who have been assessed against OPW rules and how many instances of changing an individual’s status as a result there have been.
Common challenges
Given that the OPW regime came into effect in the public sector in 2017, most employers have solid onboarding assessment processes in place. But where we most often see difficulties arising is the challenge of identifying which individuals need to be reviewed. The fact is that most purchase ledgers contain thousands of lines and entries, but these have not been reassessed since the original exercise back in 2017.
One of the key areas for local authorities and others, therefore, is to ensure there is a process to identify when an individual’s role changes or the scope of it is extended – that should be a trigger for assessing whether they are in or out of OPW scope.
Ideally engagements should be reassessed every time there is a change in or an new contract. However, there are various approaches taken to reassessments – when a financial limit is passed, when a time limit is passed, when a new contract is agreed.
The second big area of challenge is commonly around the use of agencies and umbrella organisations. It’s essential to be very clear around what each party’s obligations are. Many contracts with agencies contain generic clauses stating that the agency must flag if an individual is coming to the client via a Personal Service Company (PSC) – but there are frequently no actual checks to ensure this is happening. It may therefore be advisable for authorities to carry out an audit of these agency contracts and arrangements.
The third major area that makes OPW difficult is a more internal one. It’s the hiring manager that really understands what an individual’s role will be – but they may not have a very clear understanding of the OPW rules. Whereas the employment team understands the rules but don’t have full insight into what an individual’s role is going to be. The danger is that the assessment could be carried out by the hiring manager and completed incorrectly, or even that they pass it to the individual to complete themselves – whose perspective (needless to say) may not be entirely objective.
Taking control of the issue
Our top tips to local authorities and others to tackle these issues are:
- Have a central resource responsible for managing and reviewing OPW assessments
- Put in place a system for identifying all engagements requiring assessment as well as reassessments
- Make sure anyone with the authority to engage workers across the authority is aware of OPW rules, especially in relation to large contracts in the supply chain
- Document everything you do and keep an evidence trail of decision making
OPW is hard – everyone recognises that. Make sure that HMRC can see you’re taking the issue seriously, that you’re approaching it systematically and are striving to get it right. That way, there’s a much higher chance the discussion will be constructive and helpful rather than turn into a negotiation over a liability and penalties.
