Agencies responsible for calculating, reporting and paying tax on payments made to contractors impacted by the Off-Payroll rules could realise substantial benefits from outsourcing this task to a managed payroll service.
With less than three months until the legislation is extended to the private sector, many recruiters are beginning to explore potential arrangements to manage their newfound compliance obligations.
Most will be weighing up the cost and administrative burden associated with different options against the risk and tax liability associated with non-compliance and may want to consider a managed payroll service as a means of mitigating both risk and workload.
Managed services could allay tax liability risk concerns
One key advantage that businesses gain when they enlist the assistance of a managed payroll service is access to expertise that is absent from most alternative solutions. Though payroll software solutions have become increasingly intuitive, many experts would argue that firms still need a proficient payroll expert with experience of handling the calculations in question to run their payroll effectively.
By outsourcing their payroll to a managed payroll service, recruiters gain ongoing, direct access to the necessary expertise without having to onboard new staff. Viewed in the context of Off-Payroll, this alone could be enough to convince some agencies whose concerns over mistakes leading to tax liability risk have been compounded by their lack of experience operating a payroll.
But while managed payroll services promise a diminished risk of errors, agencies are reminded that payroll service providers can only run the payroll as accurately as is permitted by the data provided.
By providing the correct information, agencies still have a crucial part to play in ensuring accurate pay slips are produced. Should mistakes be made, though, recruiters may take comfort in knowing that managed payroll service providers are typically well versed in identifying inconsistencies and are often able to flag up and rectify any errors before they become problematic.
Access to expertise may come at a premium
Another key consideration for agencies working with tight margins is the cost of fulfilling their newfound obligations. Alternative options include adopting a software payroll solution and incorporating an umbrella company into the supply chain. The costs associated with these options vary significantly. Software payroll solutions typically cost £1 per timesheet while umbrella companies charge up to £30 per week for each worker.
Managed payroll services fall at the lower end of the scale, and though they generally cost roughly three times the amount of a software solution per timesheet, agencies may want to consider this alongside the savings made elsewhere.
For example, adopting a managed payroll service can enable agencies to negate many of the costs associated with running a compliant payroll. These include the onboarding of a payroll specialist or time and money spent familiarising existing staff with the Off-Payroll legislation.
The unpredictable nature of IR35 raises another important consideration. Indeed, with the Off-Payroll legislation having already been subject to numerous adjustments, enlisting a managed payroll service negates the requirement for agencies to keep on top of any future legislative changes. Instead, they can focus more attention on their own service offering.
How to get started with a managed payroll service
For agencies seeking to adopt a managed payroll service as their chosen solution, the integration process is relatively straightforward, with many providers also walking their customers through the process.
This typically involves agreeing a date to go live and ensuring they have all the necessary information to hand, including instructions regarding the information that they need to gather for each engagement. For engagements affected by Off-Payroll, this requirement is quite minimal because there isn’t a great deal of data needed.
Once the payroll is up and running, the ongoing requirements of agencies are also negligible. There may be some instances where recruiters may have to liaise with HMRC, though, with onboarding a new starter being a typical example of such an instance. But aside from this, continued provision of the required information is all that should be required of agencies to ensure a compliant payroll with a managed payroll service.