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What is a PSC for off payrol working

How to determine if a worker is a member of a PSC

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Hi all

Been looking at the off payroll working rules and how they apply for Med/Large businesses from 06.04.20. I have been baffled by one thing though. My understanding is that if the worker does provide the services through any intermediary (such as a PSC) the few payer has to make a determination of the worker's status but exactly what is the definition of an intermediary and how does the payer decide if the worker has a PSC? 

There is I think an overall consideration that the rules apply if the services are provided by the worker "through their own Limited Company - buy what is "their own Limited Company" I believe that there may be a rule about a 5% ownership to make it a PSC - I can't find any authority for this though.

For example if the payer is provided with (say) IT services by a Limited Company and one person provides those services, does the payer actually have to ask "are you an owner of this company do you own 5%". If "yes" then a determination is needed.  

Thanks for any advice

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By Matrix
12th Mar 2020 14:21

I thought the term was intermediary, so you would probably need to look up the definition in either the off payroll rules or IR35 legislation. Although it is the end client’s view which matters.

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Replying to Matrix:
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By kevin.robins
12th Mar 2020 16:02

Thanks for that and yes I was searching for the wrong definition. I have now found that a company (typically a PSC) is an “intermediary” if, in relation to the worker who supplies the services to the client, the following tests are met:

1. the worker is a member of the PSC (i.e. a shareholder of it); and
2. the worker receives or is entitled to receive from the PSC a payment or benefit that is not chargeable to tax as employment income; and
3. The PSC is not an “associated” company of the client (within the meaning of associated company under Section 449 of the Corporation Taxes Act 2010; and
4. Either the worker has a “material interest” in the PSC or the payment or benefit can “reasonably be taken to represent” remuneration for the services the worker provided to the client. “Material interest” is defined as ownership or control of more than 5% of the ordinary shares of the PSC by the worker and/or the worker’s “associate(s)”.

However that still begs the question - does the payer have to ask the worker if this applies so they can find out if they need to run a status test.

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By Matrix
12th Mar 2020 16:47

No because they are making blanket decisions.

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By jantill
12th Mar 2020 17:53

Not all clients (end users) are making blanket decisions.
One of our clients has been through the HMRC CEST questionaire (even though it has been declared as not fit-for-purpose by numerous experts ) and has received an outside IR35 determination for our contractor. I believe that this CEST print-out is not enough in itself to be an SDS (Status Determination Statement) as an SDS needs a written reasoning as to why the contract is outwith the IR35 Off-Payroll Regulations. But it is a start

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Nigel Harris
By Nigel Harris
13th Mar 2020 11:47

In the south west we have clients who have advised us that all of the banks, BAE and Thales have made a blanket decision. I assume many others have done the same.

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Replying to kevin.robins:
Nigel Harris
By Nigel Harris
13th Mar 2020 11:44

Presumably they must because although an umbrella company is an intermediary it is excluded from the off payroll provisions.

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By Kate Upcraft
13th Mar 2020 11:04

The pdf produced by CEST is adequate as an SDS, it is dated, time stamped and addressed to the contractor and goes to them and the first agency, if any, in the chain. There' a whole section on CEST in the ESM:https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm11000

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By tonyaustin
13th Mar 2020 12:00

It is really no different to the client paying an individual. They have to decide if an employment exists and so apply PAYE. With off-payroll, the client as to decide if the contractor would be an employee were it not for the intermediary and, if so, apply PAYE to payments to the intermediary. The SDS is the client's decision which the contractor can contest.

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By kevin.robins
13th Mar 2020 13:29

Hi all. Thanks for the replies but I am not querying the application of the rules or the use of CEST to make a determination. That part is clear.

What I am trying to clarify is if and how the fee payer finds out that they need apply the rules - i.e. is the intermediary one to who the rules apply. I have now found the HMRC website that sets out who this applies to

https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10003

So it seems that even before applying the tests the fee payer needs to know if the worker works for a qualifying intermediary? So you have a plumber working for a company come to fix a tap - the fees payer has to find out if the worker owns 5%? How do they do this (ask/check Companies House PSC?). Do they need evidence somehow?

If the answer is no - no need to consider further.

If the answer is yes - need to run CEST etc.

Have I misunderstood?

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Replying to kevin.robins:
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By Matrix
13th Mar 2020 14:17

Sorry I don’t really get your example of the plumber, wouldn’t all our (larger) clients have to make the assessment for our accounting services if the rules applied to all supplies?

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By kevin.robins
14th Mar 2020 16:34

That’s exactly my thought. I have seen a specific exemption for audit but I can’t find any reason why it wouldn’t apply to accounting services.

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By David Heaton
14th Mar 2020 17:57

Your problem is solved by ITEPA 2003, s 61U, which imposed information requirements for the public sector rules in Chapter 10 from 2017, which will apply from 6 April 2020 to all the OPW rules:

"61U Information to be provided by worker and consequences of failure

(1) In the case of an engagement to which this Chapter applies, the worker must inform the potential deemed employer of which one of the following is applicable—

(a) that one of conditions A to C in section 61N is met in the case;

(b) that none of conditions A to C in section 61N is met in the case.

(2) If the worker has not complied with subsection (1) then, for the purposes of section 61N(1), one of conditions A to C in section 61N is to be treated as met."

The conditions A to C in s61N test whether there is a company, partnership or individual within the IR35 rules. So, the client is told by the worker whether it's an IR35-type PSC entering into the contract.

If the worker doesn't give the information, the client operates the OPW rules anyway, so the worker has to comply.

If the worker lies and provides a fraudulent document as purported evidence of being outside OPW, s61V moves the PAYE liability back onto the PSC at the point when the fee-payer would have ordinarily been liable.

It's perhaps surprising that the CEST tool doesn't ask the hirer to confirm that there's an IR35-type PSC involved before launching into all the circumstantial questions. It assumes that you wouldn't be looking if you didn't need to do so, and starts by asking whether you are testing for ordinary employed v self-employed or for IR35/OPW.

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Replying to David Heaton:
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By kevin.robins
15th Mar 2020 22:59

Thanks for that - I thought there must have been something like that in the legislation but none of the guidance I have read has ever pointed to that.

It does raise the question though of how the intermediary is supposed to know it is required to provide this information! Presumably the non small employer has to tell the all their workers/intermediaries they are non small and accordingly please provide the confirmation required by ITEPA 2003, s 61U so we can consider the status of your workers. Could be going round in circles here!

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