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Off-payroll working in the private sector

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© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Off-payroll working consultationThe Government believes there is widespread non-compliance with the current IR35 rules. A consultation was issued in May 2018 to look at ways in which HMRC can better enforce compliance. Without intervention, the cost of non-compliance in the private sector is estimated to reach £1.2 billion by 2022/23.

The current rules (commonly known as IR35) are designed to apply where an individual provides their services through an intermediary, usually a Personal Service Company (PSC) but would be deemed to be an employee had they provided those services directly.

Currently, the PSC is required to determine whether the arrangement falls within these rules and account for relevant withholdings, paying broadly the same tax and NIC as an employee.

Current rules01A consultation ran between May and August 2018 to consider ways to tackle non-compliance with the IR35 rules within the private sector.

HMRC’s lead option is extending the current public sector rules to the private sector i.e. the onus moving to the end client to determine whether an engagement would be deemed as employment had the individual been engaged directly.

Where arrangements fall within these rules, the fee payer (which may be the end client or, for example, an agency), is required to operate PAYE on the payments made.

Current proposals02An announcement on the proposed changes is expected to be made in Budget 2018.

Given the fundamental changes in the way the IR35 rules will be operated, we recommend that businesses act now to consider preparing for any changes.

Our recent experience of working with clients in the public sector has demonstrated the challenges faced and associated costs in implementing such changes in a short time-frame.

Preparing for change 03

The public sector rules were introduced in April 2017, allowing for a six month lead time to prepare and implement the required changes. A similar timescale could see such changes being implemented within the private sector as early as April 2019. Although, feedback from the review of implementing the rules in the public sector, may see a longer lead in time of April 2020.

Time-frame

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© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Preparing for changeThere are a number of key areas that will need to be considered in order to prepare for change.

Talent management and the ability to source and retain key skills with minimal impact on current and new business

Ensuring the integrity of the labour supply chain including third party arrangements (e.g. areas such as National Minimum/Living Wage (NMW) workers’ rights, Construction Industry Scheme (CIS))

Identification of systems, processes and procedural changes to underpin compliance

Understanding of all additional costs to the business (impact on margins) and alternative resource options

Critical assessment –considering employment status including contracts in place

Training to impart knowledge and support understanding for all key elements of changes

Establishing the key stakeholders with responsibility for engaging labour

Understanding and identifying relevant engagements and their exposure to issues with quality, cost and performance, as a result of changes to the workforce composition

© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. © 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Now As early as April 2019 or April 2020

Systems

Evaluate

Businesses will need to assess their current systems and plan for implementation of enhancements to their systems, processes and procedures.

— Additional processes and procedures will need to be designed and tested, including those to reconcile payments

— Training will need to be rolled out to all relevant stakeholders, including those involved in engaging contractors and with facilitating payments

— Systems, controls and processes will need to allow for regular review of the arrangements in place taking account of changes in the fact pattern to ensure ongoing compliance

Key stakeholders in the business will need to understand all aspects of any new rules to successfully implement the changes required.

— Workshops with key functions including HR, Finance, Procurement, Tax and Legal are vital to understand the end-to-end process and perform a gap analysis

— Identifying the relevant populations affected by the changes, performing a risk analysis of employment status for differing contractor populations and understanding the implications of recent employment law developments regarding worker status

— Consideration of the governance process including Senior Accounting Officer (SAO) and Corporate Criminal Offence (CCO) to underpin compliance

Process and determining employment status

Governance framework (SAO,CCO)

Stakeholder workshop

Risk categorisation(High/Medium/Low)

Employment law (worker status)

Auditing of third party suppliers

Identify key stakeholders Training

Contract review Gap analysis

Payment processes and reconciliation

Outsourced services

Engagement process

Roll out of policies, systems and processes

Payroll changes Training

Data storage Audit process

Third party supplier arrangements

GDPR

Businesses need to understand their contractor spend and the populations that will be impacted by the new rules to assess the cost associated with compliance.

— Any evaluation of the costs of engaging contractors will need to take into account direct costs such as employer’s NIC and the position of contractors who may wish to re-negotiate their rates

— There is also an inherent cost associated with the design and implementation of systems changes

— Other ancillary costs including professional fees and the right to holiday pay and NMW will also need to be considered

— Alternative resourcing or business process change to mitigate increased costs should be identified and assessed

Cost

Resource

The introduction of any new rules has the potential to impact the talent pool available. Understanding the impact of change on the supply chain will be critical to avoid disruption to the business.

— Communication of the application of the changes and the treatment of workers as employees will be an essential part of the retention of key talent

— Consideration of the exposure for critical roles and the attraction and retention of suitable talent for current and future contractors

— Overview and management of the supply chain will be critical in order to manage any potential reputational risks

Impact on existing budgets/projects

Other taxes (VAT)

Employer’s NIC

Increase to commercial rates

Workers’ rights (holiday pay and NMW)

£

Insourcing or outsourcing costs

Systems adaptation

Professional fees

M&A activity

Penalties for non-compliance

Identify impacted populations/groups

Artificial Intelligence/Robotics/Automation

HR/Talent review

Recruitment/engagement process

Gig economyEmployment status

Retention of existing contractors

Agencies/Umbrella Companies

Supply chain Overseas contractors

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© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Our four step delivery model ensures that businesses are fully prepared and able to react to any changes to the IR35 rules.

Supporting change – four step approach

Assess

1. Key stakeholders.

2. Labour supply including agencies.

3. Engagement processes.

Understand

1. Scale and quantum of PSCs engaged.

2. Existing processes and controls.

3. Implications for talent management, resourcing and cost.

Diagnose

1. Systems changes.

2. Policies, processes, controls, contracts.

3. Ongoing compliance processes and procedures.

Respond

1. Test and implement changes.

2. Management of stakeholders and budgets.

3. Ongoing audit process to check compliance.

01

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How we can support you

Training – this is essential to ensure all business areas are prepared for the changes. Training will need to cover both the technical aspects of the changes and any systems changes. We can design bespoke training programmes and materials to meet your business requirements.

Experience – having already worked with a number of public sector bodies to implement the changes that took effect from 6 April 2017, we have practical expertise of the issues and challenges that are likely to be faced by the private sector.

Multi-disciplinary working – we regularly work as part of a multi-disciplinary team bringing tax, reward, legal, people consulting, data analytics and regulatory expertise together to provide an end-to-end solution tailored to meet our clients’ requirements.

Workshops – we have found that a workshop is generally the most effective way of ensuring collaboration and buy-in to the project by key stakeholders. This ensures effective project planning allowing for the implementation of changes to meet relevant deadlines.

Employment status – our experienced team can provide support in establishing the employment status of contractors, assessing associated tax and employment law risks. In addition we can also support with the review of contracts and working practices.

Workforce/talent reviews – we can help you manage the people issues arising from these changes –from planning your workforce to ensure you have the correct capability within your business through to behavioural change management and providing advice on your employee value proposition and talent management processes.

Project management – our dedicated PMO team can provide support to your business to ensure effective project management and governance. This will ensure key project milestones are achieved and essential internal resource is utilised more effectively on the project.

Technology – using KPMG technology we are able to help you identify and assess your impacted population and provide key management information both for the cost of ongoing compliance and the management of contractor engagement.

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© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. © 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

To support your business, KPMG offers a wealth of technology solutions providing analysis and real-time information.

KPMG Technology

Off-Payroll Management Solutions

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Contact us If you would like to understand more about these changes, the impact this may have on your business or would like to explore how technology can support you in preparing for change, please speak to one of the following or contact your local advisor:

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

CREATE. | CRT101958C | October 2018

Anne-Marie Robinson T: +44 (0)121 335 2726M: +44 (0)7748 321116E: anne-marie.robinson@kpmg.co.uk

Caroline Laffey T: +44 (0)191 401 3849M: +44 (0)7770 284399E: caroline.laffey@kpmg.co.uk

Justin StokesT: +44 (0)121 3352796M: +44 (0)7825 682230E: justin.stokes@kpmg.co.uk

Rachel BeecroftT: +44 (0)20 7311 3356M: +44 (0)7917 040361E: rachel.beecroft@kpmg.co.uk

kpmg.co.uk

Anne-Marie BodenT: +44 (0)207 694 2626M: +44 (0)7585 401286E: anne-marie.boden@kpmg.co.uk

Michael WilsonT: +44 (0)191 401 3714M: +44 (0)7767 350475 E: michael.wilson@kpmg.co.uk

Helen SherrattT: +44 (0)161 246 4244M: +44 (0)7786 022275 E: helen.sherratt@kpmg.co.uk

Michael HancoxT: +44 (0)121 609 6127M: +44 (0)7788 304733E: michael.hancox@kpmg.co.uk

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Catriona Donald T: +44 (0)131 527 6819 M: +44 (0)7824 837525E: catriona.donald@kpmg.co.uk