Agency Legislation Will Stifle Self-Employment

Revised legislation too risky for agencies

HMRC has recently published guidance to supplement the changes made to the Agency Legislation back in April. The legislation aimed to tackle ‘false self-employment’ now only requires a worker to be the subject of a right of control to make them an employee and for the agency to be held responsible for operating PAYE.

Where an offshore intermediary directly supplies a UK-based client with a worker, it is the client who is treated as the worker’s employer. If a UK-based intermediary is involved, they are treated as the worker’s employer. Whoever is treated as a worker’s employer must operate PAYE when they make payments to the worker.

Who is an employee?

From 6 April 2014, a worker must be treated as an employee for Income Tax and National Insurance purposes if the worker

• is placed with a UK-based client
• personally provides their services to the client
• provides their services to the client, or is paid for their services, because of a contract between an employment intermediary and the client (or someone connected to the client)
• is, or can be, supervised, directed or controlled by someone as to how they do the work
• isn’t having the payments they receive for providing their services already treated as employment income

These conditions do not apply if a worker provides their services from their home or somewhere that isn’t controlled or managed by the client or required by the nature of the services.

Agency burden

From 6 April 2014, agencies must be able to prove to HMRC why the worker wasn’t treated as an employee. They will have to work with their client and the worker to get suitable evidence to demonstrate this.

From 6 July 2015 onwards, agencies will have to send HMRC reports that contain details of all workers and their payments for those they consider to be genuinely self-employed, with penalties applying where reports are late, incomplete or incorrect.

Each report will contain:

• the start and end dates of the reporting period
• the worker’s personal details
• the engagement and payment details

If a worker has more than one engagement in a reporting period, then the agency must provide details about each engagement, including:

• how a worker was engaged to do the work – through a partnership, limited liability partnership, self-employed, limited company, another party that operated PAYE;
• start date of each engagement;
• end date of each engagement (if there is one);
• number of hours worked during the reporting period;
• total amount paid to the worker;
• the full name or trading name of whoever received the payments – if this was a limited company, the company registration number must be provided; and
• if the payment included VAT.

The agency legislation has always been much misunderstood by agencies and has had the same effect on them as a cross to a vampire. These changes coupled with the increased administrative time and cost, together with potential penalties for getting it wrong, may cause employment intermediaries to treat the self-employed as ‘untouchables’.