Outsourced Services Outside Off-Payroll

What’s not caught by the new rules?

Recent guidance published by HMRC, titled ‘Off-payroll working in the public sector:  scope of the reform and preparing for 6 April 2017’ sets out those situations that sit outside of the public sector off-payroll rules.

Who are outside the scope?

If the PSC is caught by the Managed Service Company (MSC) legislation, then it follows that they will not be subject to the off-payroll rules as their income will already have suffered PAYE and NIC. Other situations which are outside the scope include:

• Individuals directly employed by an agency/employment business.
• Umbrella company workers.
• Foreign entertainers falling within their own special tax regime.
• Organisations outside of the provisions of the Freedom of Information acts.
• Workers who provide their services either through a PSC or as a sole trader and who would not be an employee if engaged directly. According to the guidance, these will be workers who are likely to have a significant level of financial risk associated with delivering their work and have a high level of control over how, where and/or when they do that work.
• Where a public authority has fully contracted out services to a service provider and the workers do not personally provide their services to the client.

Contracted-out services

The legislation requires that a worker provides their services personally to the public sector client but this condition will not be met where the public authority has contracted out the service to a third party, e.g an outsourcing company, in such a way that the third party does not as part of that service provide their public sector client with the services of the worker(s).

HMRC provide a number of examples of services that are considered truly contracted-out and those that are not.

Outsourced and outside the scope

Example 1

Outsourcing PLC has a contract with the Ministry to build and deliver a payroll computer and provide online access to an agreed standard of £X million per year for two years. The number of workers needed to deliver the project, their cost and the risks are borne by Outsourcing PLC and the Ministry is not sent workers. The Ministry is not aware of how many workers Outsourcing PLC engages and that is not part of the contract. From time to time, Outsourcing PLC need their people to discuss changes to the system and these people are given security passes but they only report to and carry out tasks for Outsourcing PLC and not for the Ministry.

Here, the Ministry has contracted out a whole service into the private sector and no worker personally provides their services to it but rather they provide their services to Outsourcing PLC.

Example 2

Midshire County Council puts out window cleaning to tender as part of a building services contract covering cleaning and ground maintenance to a required standard. County Hall has 500 windows.

Outsourcing PLC wins the contract for this and other building services. They sub-contract the window cleaning to Bob Ltd at £X to clean 500 windows twice a week. Outsourcing PLC does not supply labour to the council. Bob carries out some of the work himself and pays two employees to work for him and hires machinery and a cradle.

Outsourced but involves a labour supply

Example 3

The Ministry needs to hire 15 consultants to advise it on how to design a new HR system to integrate with the outsourced payroll system. They will work mainly at the Ministry office and are managed by the Ministry’s implementation project manager. Outsourcing PLC supply 15 consultants and send CVs to the Ministry for approval. The contract is for the provision of consultancy services and the bill is based on 15 consultants at £X per day.

Although the work is contracted out, what the Ministry receives is the services of 15 workers. Where these workers are engaged via their own PSCs, then the off-payroll rules have to be considered because the contract is one in which the worker personally provides services to the public authority.

Example 4

Midshire County Council require a caretaker to live in at the new community centre. The person will be working with children and vulnerable adults and they ask Outsourcing PLC to supply a suitable person that has been checked by the Disclosure Barring Service. Julie is engaged via her own PSC to fulfil this role and she is required to report to the council’s centre manager.

As Julie is personally providing her services to the end client, the off-payroll rules have to be considered.