Does outsourcing payroll to a managed service provider protect employers against an HMRC challenge?
There are a number of factors to consider. The first is that payroll providers are intermediaries and are now subject to the agency legislation and must be able to show nobody has the right to supervise, direct or control how the services are provided. This is an extremely difficult test to pass and in most cases will result in the intermediary not being able to defend a challenge, and subsequently ceasing trading. The intermediary will also have a statutory obligation to submit quarterly reports to HMRC setting out whom they have paid, how much and why PAYE has not been operated.
Rather than providing greater protection to the employing company, this raises the profile of the business and makes an HMRC enquiry significantly more likely.
Perhaps the most important point however is that depending on how you operate HMRC could still assess the company rather than the intermediary for the liabilities therefore rending the intermediary as nothing more than a payroll company.
Some payroll companies offer an indemnity. How does this differ from RIFT Legal Services?
Where RIFT Legal Services are protecting a client with a directly engaged workforce, the applicable law is different than if an intermediary is used and it is much easier to demonstrate someone is self-employed.
Although some payroll companies have starting offering their clients indemnities, this is because there is an acknowledgement that they don’t provide the fundamental protection they once did and there is scope for HMRC to target the company it contracts with.
The key difference to bear in mind between a payroll company’s indemnity and RIFT’s is that the payroll company’s business is reliant on them being able to defend an agency legislation challenge which will be very difficult. If they cannot defend such a challenge they will be wound up at which point any indemnity you have with them will not be of much use.
RIFT Legal Services are not only specialists in the field of tax but we also don’t operate as a payroll company meaning HMRC cannot target the whole of our business as they would have to target our clients individuals on a case by case basis. Our clients may therefore be individually challenged but we have an exceptional track record in defending HMRC disputes.
Will my company be paying the individuals or will RIFT?
You would pay the individuals and have the direct contractual relationship with them. As there is no intermediary to deal with you can pay them when it suits you and are not restricted to the timescales and deadlines of others. It also means you won’t have to be paying VAT on all the wages like you would with an intermediary.
If you like the outsourced payroll part of using an intermediary, just bear in mind the cost you are paying for that privilege and uploading a pay file into the bank is not actually as much of a pain as you may perceive it to be.