How’s your OPW approach bedding in?
HMRC’s ‘light touch’ approach to enforcement of the new OPW regime ended this month. This means that HMRC will impose penalties for inaccuracies that arise on or after 6 April, as well as recovering the relevant tax and NIC plus interest.
This has prompted a number of organisations to review how their OPW systems and processes are bedding in, and what steps might be required to strengthen them.
If you haven’t yet done so, now could be a good time to review your own OPW position.
Equipping your employees with the knowledge and tools to ensure your business stays on top of its compliance obligations is central to this.
Learning lessons
From April 2017 and April 2021, end-users in the public and private sectors respectively became responsible for determining the employment status of off-payroll workers they engage.
This is an issue that transcends all levels of a business and requires the input and buy-in of different stakeholders (e.g. Finance, HR, Procurement, Tax, Legal) – each with varying levels of familiarity with tax issues - to ensure that effective processes and procedures are in place to reduce compliance risk and ensure, where relevant, that Senior Accounting Officer rules are being met.
Recent Parliamentary, public, and professional scrutiny of the new OPW regime has highlighted several points that organisations can learn from when reviewing their own OPW governance and procedures.
For example, there’s been recent media coverage of OPW non-compliance in the public sector, with significant potential liabilities arising. A recent National Audit Office (NAO) report highlights that, ‘The 2020-21 financial statements of government departments and agencies include a total of £263 million paid, owed or expected to be owed in additional tax for failing to administer the reforms correctly’
The financial and reputational risks can therefore be substantial – and of board level concern. Therefore, seeking expert insight and advice to deliver practical learning points as the legislation evolves is crucial in ensuring that parties in the labour supply chain, for example end-users of contingent labour, can demonstrate to HMRC that they have taken ‘reasonable care’ when operating the rules.
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A large corporate dealing in global markets engaged KPMG to present a virtual workshop detailing the intricacies of the changes to the OPW legislation. By focusing on the key areas of change and the areas of responsibility for each part of the business, different stakeholders acquired the knowledge they need to discharge their obligations in their area. This training session was supplemented by Frequently Asked Questions which allowed attendees to test their learnings/understanding and how it applied to them. Importantly, this training was recorded and is available for individuals to replay to serve as a tool supporting day-to-day compliance activities, and also to bring new team members quickly up to speed.
To comply with their obligations as an ‘end user’ under the OPW rules, many businesses use HMRC’s Check Employment Status for Tax (CEST) tool, or alternative employment status tools offered on the market to assess their contractor population.
The inputs these tools require and the supporting guidance and principles that underly the questions asked are detailed and complex.
The NAO investigation into public sector OPW tax reforms found that, during the implementation of those changes, often hiring managers whose duty it was to assess employment status found it difficult to interpret and apply the CEST tool’s technical guidance given its length and detail.
How confident are you that your workforce is accurately applying such guidance (or understanding it) in reaching employment status assessments?
Furthermore, the House of Lords recently called for strong enforcement action against engagers who issue blanket status determination statements, rather than meet their obligation to make individual determinations taking reasonable care.
Therefore, training that gives your staff the confidence to interpret and apply complex areas of OPW – and avoid the trap of making blanket determinations – is crucial to ensure that your business meets its obligations.
And it’s not just the OPW rules themselves that need to be assessed. As highlighted by a recent Treasury call for evidence and House of Lords OPW enquiry, supply chains are more complex than ever, with labour being provided in many forms, from umbrella companies to labour agencies to statements of work/outsourced services.
Businesses need strong controls to ensure these entry routes are secure and compliant. The first line of defence is having a well-trained workforce that knows the traps and can spot the opportunities.
What are your peers and competitors doing?
A fit for purpose OPW training plan and access to high quality learning materials are key to ensuring your people are informed and able to flag potential OPW issues at an early stage.
It’s crucial that training programs are adapted to the goals and objectives of the desired audience – and that’s not just your finance and payroll teams. OPW, like many areas in payroll tax compliance, needs engagement from other functions like procurement, and informed participation from operational line managers.
To that end, companies we’ve worked with have derived real value from targeted sessions, tailored to specific stakeholders’ needs, presented remotely through Microsoft Teams or Zoom, or in person where this suits the needs of the business.
KPMG held an interactive workshop with a public body to explore and explain the OPW rules. In particular, a significant amount of time was devoted to the CEST tool, which was used by the client, discussing HMRC’s supporting guidance and how to interpret the questions posed. Employment status and its underlying principles are notoriously complex areas, and it is key that the principles around, for example, substitution, what constitutes financial risk, and aspects of control are duly considered. Therefore, it is of the utmost importance to truly understand the meaning of the questions asked and ensure that the responses provided are accurate against the bar of HMRC’s guidance.
These sessions also benefit from interaction between presenter/attendees, providing the opportunity to ask questions on the hot topics in OPW, such as supply chain due diligence or the analysis of the provision of contracted out services. These forums provide an ideal way to impart and reinforce knowledge and to share best practice.
How are you ensuring your employees are up to date?
Now that the OPW rules have had a year to embed, it’s vital – financially and reputationally – to confirm that your workforce has the knowledge and expertise to manage your compliance risk.
Effective workforce training and high-quality learning resources are key tools in managing the risks and leveraging the opportunities. However, delivering these is an ongoing process and not an event.
Challenge your OPW training plan with the following questions:
- What are your current requirements? These change over time, so how do you know if your current plan is still fit for purpose? Have your new OPW systems and processes been implemented as expected over the past 12 months? Is it time to conduct a broader OPW assessment to make sure your training is aligned to your needs?
- How can it best be delivered? People learn in different ways and, more than before, different locations – is your current training appropriately structured for stakeholders’ differing needs and levels of familiarity with OPW – and are you using the best medium (e.g., e-learning, written manuals, online classrooms) for your messages?
- How do you know it’s effective? Where errors arise, how do you learn from these? How are the key learnings captured and shared? What arrangements do you have in place to effective continual development (e.g. regular training and technical updates from external advisers)?
If you would like to talk through how we can help you to deliver effective training programmes for your business, please get in touch with Eloise Knapton, Anne-Marie Robinson, Alex Raybould, or your normal KPMG contact.