With Budget Day nearly upon us HMRC have published a summary of responses to the consultation on ‘Onshore Employment Intermediaries: False Self-Employment’.
Legislation will be introduced from 6th April 2014 aimed at employment intermediaries, chiefly those operating within the construction industry but not exclusively, which will force them to deduct PAYE and NIC from individuals who are, in reality employed, despite being ‘dressed up’ as self-employed.
Four conditions will need to be met for the revised rules to apply with the main one being that the manner in which the worker provides the services is subject to (or to the right of) supervision, direction or control by any person. No longer is it necessary to demonstrate the absence of personal service by an individual.
Due to the proposed wording of the amended legislation, virtually all those who responded to the consultation mentioned the interaction with IR35. In particular, a number of respondents felt that there would be practical problems in relation to PSC’s and confusion with the IR35 legislation, although HMRC did move to head this off last month by issuing a technical note that effectively confirmed PSC’s are not a target for this legislation.
There was concern that the control test would prove problematic in practice so to allay those fears HMRC have produced a 19 page guide on the subject which sets out various scenarios (subject to control and not subject to control) for the following trades and professions:
Further guidance can be found by downloading the following guide:
Definition of Supervision Direction or Control with supporting examples
As most employment intermediaries will not have first-hand experience of whether or not their worker is being subjected to a right of control by the end user, they will need to obtain documentary evidence to demonstrate that no control exists. Where such documents have been falsified by a third party then a provision is to be introduced where the payment of PAYE and NIC will be transferred to the perpetrator but only where that business is in direct contractual relationship with the employment business/agency, i.e. the end client or another agency.
Accompanying the amended legislation are new PAYE reporting requirements but the Government has agreed to delay these until 6th April 2015.
To prevent employment intermediaries from circumventing the legislation by setting up alternative structures, a Targeted Anti Avoidance Rule (TAAR) will be introduced. The aim of the TAAR is to deter avoidance. So, for example, where an employment intermediary requires all its workers to incorporate solely for the purpose of avoiding the new legislation and reducing tax, the TAAR would be used to stop this practice.
Next stop, Budget 2014.