Off-Payroll Working Rules

Geoffrey Willies, CEO, Charles Marcus
March 2021

The OPWR for the private sector will become effective on 6 April 2021. These rules will be similar to those already applicable to the public sector since 2017. The contribution by highly skilled consultants to the UK economy is recognised by excluding consultancy firms from the scope of OPWR. 
Charles Marcus consultants have the benefit of career independence and the security of total compliance with the Off Payroll Working Rules. Consultancy firms provide their services to clients on a business-to-business basis outside the scope of the OPWR. Legitimate consultancy firms can continue to be rewarded for their commercial risk, provided their consultants are paying PAYE in the same firm’s payroll. This is confirmed by the HMRC online Employment Status Manual: (ESM10003) “Chapter 10 should not apply where an individual performs services for a client and that individual is already engaged under a contract of employment and their earnings are subject to PAYE by another party, other than that individual’s intermediary, in that supply chain.” For example, if a consultant is legitimately employed by a consultancy firm and that firm operates PAYE, the rules should not be applied where that consultant performs services to a client.

OPWR do not apply when an agency engages a consultancy firm on a business-to-business basis, to provide the services of a contractual employee, to a client of the agency. The agency is not engaging with an individual or with a PSC. The PSC model has been replaced by the PAYE model. Charles Marcus consultants have always been contractual employees paying PAYE in a payroll.

Charles Marcus consultants are frequently seconded to other consultancy firms to be presented to the end client as an associate of the other firm. These roles are always out of scope of OPWR.

OPWR focus on agencies which engage individual consultants to clients using a PSC to mask their status behind a corporate veil. The application of OPWR lifts the corporate veil to consider the individual employee and the PSC employer as one entity. Employee and employer must be separate entities. The employee cannot own more than 5% of the employer (the material interest test). The employee must not be a director of the employer (the controlling interest test). The PSC fails both tests and cannot be considered as a legitimate consultancy firm even though it may operate a PAYE scheme. A PSC cannot be compliant when OPWR apply.

Whether or not OPWR applies to the engagement of an individual who does not have a contractual employer, depends on whether the status of the individual is determined to be that of an employee or self-employed. There is an online tool to determine, or check, the employment status for tax purposes. This is the CEST tool which provides a Status Determination Statement (SDS). The result is referred to as being ‘inside IR35’ or ‘outside IR35’. Employees work under the direction and control of the client who hires them. They are ‘inside IR35’ and all payments for their services must be paid through a payroll of the client or by an umbrella company. Self-employed consultants do not work under the direction or control of the client. They decide their own working arrangements both in contractual terms and in reality. They are ‘outside IR35’ because the assignment is out of scope of the new rules. Fees can be paid by the client to the self-employed individual without any additional restrictions. The usual income tax regulations apply.

Charles Marcus is the contractual employer of the individual, not an intermediary within the meaning of OPWR. The intermediaries legislation does not apply to Charles Marcus. An SDS is not relevant to the engagement because it is out of scope, neither inside nor outside IR35.

OPWR do not apply to clients which are small companies. These are defined as meeting two of the following three criteria: turnover less than £10.2m, net assets less than £5.1m, not more than 50 employees. Small companies may continue to engage with a PSC out of scope of OPWR.

For further information or guidance - please contact us.