Agency Legislation Inapplicable to Contractors

HMRC confirms revised legislation not aimed at freelancers

On the eve of the closing date of the consultation on  ‘Onshore Employment Intermediaries: False Self-Employment’, HMRC have now confirmed that the draft Finance Bill 2014 clause that proposes to amend the ‘Agency Legislation’ is not intended to apply to contractors.

In a note published in response to concerns that have been raised during the consultation HMRC have confirmed that for the new Agency legislation to apply from 6th April 2014 all of the following qualifying conditions need to be met:

• the worker personally provides, or is personally involved in the provision of, services to another person as a consequence of a contract between that person and a third person;
• the manner in which the worker provides the services is subject to (or to the right of) supervision, direction or control by any person.
• remuneration is received by the worker in consequence of providing the services; and
• that remuneration does not constitute employment income apart from under the Agency    legislation

As is currently the case, the proposed Agency legislation will not generally apply where a worker is engaged via a PSC, as all the above criteria will not normally be met. This is because:

1. the legislation will only apply when remuneration is received by the worker as a consequence of providing the services. Therefore dividends paid to the worker as a genuine consequence of their shareholding in the PSC will not normally fall within the new Agency legislation.
2. the legislation only applies when the worker receives remuneration which is not employment income before the provisions of that legislation are applied. Any salary paid to the worker by the PSC is already employment income so the new Agency legislation would not apply to that remuneration. 
3. Loans are made by reason of the employment with the PSC. Beneficial or written off loans are chargeable to tax and NIC as earnings but do not normally arise as a consequence of the worker providing the services. As such, they would not fall within the scope of the Agency legislation.

Contractors therefore need only concern themselves with IR35.