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False Self-Employment Tweaking

HMRC partially relents over new Agency Legislation

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:

  • IT consultant
  • Professional chef
  • HGV driver
  • Joiner/carpenter
  • Supermarket delivery driver
  • Security officer
  • Locum pharmacist
  • Care worker
  • Market researcher
  • Operative at a recycling plant
  • Drama teacher
  • Product demonstrator

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.

By Andy Vessey

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4 thoughts on “False Self-Employment Tweaking”

  1. Colin Smith

    The I.T Consultant – Scenario 1 is complete rubbish and totally divorced from any form of reality. An analogy would be like turning round to a builder and saying “I want an extension on my house” and then not giving any details on what you want. It would never happen.

    That said – it would certainly explain the shamles that the Universal Credit system has turned into if the DWP was following the scenario 1 type example with their contractors – “here – we want a new IT system to handle benefit payments – we’re not going to give you any guidance on how to do it or control any aspect of your decisions”.

    Total nonsense!

  2. KD

    I thought exactly the same as Colin when I read that PDF, it’s absolutely ridiculous.

    I’m having my driveway redone in a month or so and I’ve told the builder EXACTLY what I want doing and every detail be agreed in writing before he even lifts a shovel. I guess that means he’s not really self-employed then, I must let him know about that the next time I see him. 😉

    Even if you are truly an empty headed customer who doesn’t know what you want, it would be common business sense and extremely prudent to have a discussion (and a written agreement) about what will be delivered before any work is done – and certainly in more detail than “I’d like a web site please”! The fact that they have chosen to use a web site in the example is especially amusing. Do they not realise that this would be heavily influenced by the marketing department of any medium to large company? Do they really think a company would leave the image it portrays online to be decided by a random web developer?

    The HMRC example effectively disallows technical designs and detailed specifications being given to the contractor at the start of the work! Do these people have any idea how the real world works?! As Colin says, if this is how the Government thinks things should be done, now we know why they keep getting their pants pulled down when they engage companies to deliver large projects for them.

    If HMRC try to take these cases to court on the basis of flimsy arguments like this then the amount they’ll lose in legal fees will dwarf any tax that they manage to claw back. I guess that’s why they now want people to pay any tax they are “suspected” over owing up front, before they actually prove that’s the case – they know the likes of QDos and AbbeyTax will make mincemeat out of them if they try push this rubbish in a courtroom.

  3. C

    Agree with both #1 and #2.
    They are clearly struggling to make a coherent argument – what they quoted in Scenario 2 was not a case of someone being told how to do their work, but being told exactly what the outcome of the work was to be. They are very different.

    They have confused someone being told exactly what product information is to appear on a web site, and how it is to look, with someone being told how to make that happen.

    To use the previous analogy of the house extension, in Scenario 2 the client has specified how they want the house extension to look, possibly the materials to be used (sandstone versus granite or brisk etc) but not how the contractor should achieve that. Only the latter is direction and control, the former is simply the normal process of requirements specification without which there is no basis for a contract – there must be a yardstick against which the outcome is assessed.

    They’ll get their head in their collective hands in court with their usual misrepresentation of the world.

    It’s nuts that anyone would ever try to justify a 1 week contract as “employment” – let alone try to define that the difference between these scenarios constitutes any kind of logical reason why one person should pay massively more tax that then other.

    Long past time for all this nonsense to stop. Get rid of Employers NI and it all goes away.

    P.S. KD – what’s this about them trying to get people to pay “suspected” tax in advance?

  4. KD

    Hi C,

    This is what I am referring to:

    http://www.out-law.com/en/articles/2014/january/tax-in-dispute-could-be-demanded-upfront-in-most-cases-of-suspected-avoidance-under-government-proposals/

    At the moment it appears to be targeted more at the Jimmy Carr types but I’m sure there will be some “scope creep” in the years to come….

    As you say, they can save themselves a whole lot of trouble by simply getting rid of Employer’s NI. That’s too much like common sense though.

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