HM Revenue and Customs (HMRC) have published new guidance on Monday 24th May 2021 which explains how intermediaries can calculate statutory payments for their workers where the off-payroll working rules (IR35) apply.
Some payroll software and service solutions may have incorporated automated calculations to facilitate automated statutory payment calculations whereas others may require manual adjustments.
Earnings used for calculating statutory payments
Entitlements are calculated by using the gross earnings subject to Class 1 National Insurance contributions from a relevant period dependent upon the statutory payment being made.
When off-payroll working income is paid to a worker’s intermediary, it is already net of Income Tax and Class 1 primary National Insurance contributions. Therefore, no further deductions of Income Tax and National Insurance contributions will be made from off-payroll working related payments made to a worker by their intermediary.
The worker’s entitlement to statutory payments should include all gross amounts of earnings subject to Class 1 National Insurance contributions paid in the relevant periods.
The new guidance is aimed at highlighting the process to follow to ensure that consideration is given to the gross amounts, even though only net amounts of off-payroll working income will be processed within the payroll.
Earnings period for off-payroll working income
As the worker’s entitlement to statutory payments arises from their employment with their own intermediary and not with the deemed employer, the earnings period for statutory payment purposes will be determined by when their intermediary makes payments of earnings to them. This is the case even though those payments will be made net of income tax and National Insurance contributions.
Note – Payments not subject to tax or National Insurance contributions are to be reported within data item 58A of the Full Payment Submission (FPS). For statutory payment entitlement to arise, payments of earnings must be made by the worker’s intermediary, even though these payments will be net of Income Tax and Class 1 primary National Insurance contributions. If a worker chooses to remunerate themselves solely by way of dividends, entitlement to statutory payments will not arise. The same principle applies to entitlement to the Coronavirus Job Retention Scheme, entitlements are based on amount paid as employment income and not by other means.
Finding out gross income for off-payroll working engagements
The amount of gross earnings subject to Class 1 National Insurance contributions for off-payroll working engagements must be identified to ensure all qualifying earnings are included when determining eligibility.
If the worker’s intermediary receives amounts for off-payroll working engagements, but only pays part of that as a net amount to the worker, a just and reasonable apportionment must be made when attributing the tax and Class 1 primary National Insurance contributions paid on that net amount.
Working out statutory payment entitlement including off-payroll working income
HMRC explains 3 different ways the gross amount of off-payroll working income can be taken into consideration.
1: Total gross pay subject to Class 1 National Insurance contributions for the relevant period can be overwritten
2: Final statutory payment amount to be paid can be overwritten
3: Additional box in payroll software where gross off-payroll working income can be added to non-off-payroll working income for the relevant earnings period
An Employer Payment Summary (EPS) should also be submitted as normal to declare amounts of statutory payments that will be recovered by the worker’s intermediary.
The full guidance can be found at:
PAYadvice.UK 24/5/2021
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