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Full steam ahead with the new false-self-employment rules
17 March 14 | By: Jas Jhooty
Last week HMRC published their summary of responses to their original consultation document Onshore Employment Intermediaries: False Self-Employment.
The issues contained in this consultation document relate to the government’s proposed steps to counter the growing trend of agency workers being treated as self-employed for tax purposes and were covered in this previous article.
The key points of HMRC’s summary of responses are as follows: -
The new legislation will NOT be delayed and will become law on 6th April 2014. This is because the Government wants to address mass-marketed avoidance of the existing loopholes in the current legislation as soon as possible.
Most respondents to the consultation were concerned with the timing of the introduction of the new legislation and also the new reporting requirements that agencies will have to adhere to.
The Government appears to have listened to these concerns and have agreed to delay the reporting structure originally scheduled for 5th November 2014, until 5th August 2015 to allow HMRC to conduct full implementation and testing procedures.
Definition of an Intermediary
Many respondents were concerned that the definition of an intermediary was too broad in the original draft of the proposed new legislation. HMRC have agreed to amend the definition of intermediary to make it clearer that only businesses supplying labour are affected.
The issue of control of a worker is now paramount in deciding whether a worker is to be caught under the new legislation. Intermediaries will be required to operate the new agency legislation and deduct income tax and NICs through PAYE where the manner in which the worker provides their services is subject to (or subject to the right of) supervision, direction or control of anyone in the contractual chain. A common concern of stakeholders was their ability to be able to determine whether the worker is under supervision, direction or control.
To that end HMRC has published an extremely useful 19-page paper on the Definition of Supervision, Direction and Control for employment status purposes. This paper contains current case law on employment status and useful examples of real-life scenarios of whether control applies or not.
Employment agencies were concerned that they could be supplied false information about the level of control by the end client (or another agency), yet they will still be liable for any unpaid PAYE and NICs.
A new provision ensures that any liability can now be transferred to the end client (or another agency) if they provide inaccurate or fraudulent information to the primary agency in relation to control and status. Agencies should ensure that they ask the relevant control questions for every worker assignment.
Targeted Anti Avoidance Rules (TAAR)
As separate IR35 legislation applies to Personal Service Companies (PSCs), this new intermediaries legislation will not apply to them.
New anti avoidance legislation is being introduced to counter situations where it may seem attractive to migrate a worker from self-employed status to PSCs status just to avoid PAYE & NICs.
Mass migration to PSCs will definitely not be tolerated by HMRC just because PSCs are outside the scope of this new legislation.
How emTax can help?
This new intermediaries legislation will have huge financial consequences for employment intermediaries and the construction industry in particular. This legislation only affects workers supplied through agencies who are currently being taxed on a self-employed basis. The only determining factor of whether this legislation is to apply or not, is the one of control.However if a company were to engage directly with a worker and remove the agency from the equation, that worker’s employment status would be dependent on many additional factors including: -
- Is there a mutuality of obligation?
- Has the worker the right to substitute their work to someone else?
- Does the worker provide their own equipment?
- What is the degree of financial risk/ opportunity to profit enjoyed by the worker?
- Is the worker part and parcel of the organisation?
Our consultants are experts in all areas of employment tax including employment status issues. We have recently successfully devised workflow procedures for clients that ensure that the correct status decision is reached at the time a worker is engaged. A combination of changing your engagement processes and operating new procedures correctly usually eliminates any employment tax status concerns you may be having. By engaging our services you may be able to save on agency fees while minimising your risk to any future employment status enquiries conducted by HMRC.
If you want any further advice on this or any other employment tax matter, please do not hesitate to contact us.