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Providing labour or a service?

CIOT want improved guidance on Employment Intermediary Reporting

The Chartered Institute of Taxation (CIOT) have written to HMRC in respect of the department’s guidance re the Employment Intermediaries Reporting Rules (EIRR) and Agency Worker legislation (s.44, ITEPA 2003), in particular whether or not sub-contractors should actually fall within the rules. Whilst this issue was raised in March 2015, in the CIOT’s opinion and my own I might add, the guidance on agency versus outsourced service remains inadequate and vague, and causes confusion amongst those affected businesses such as agencies.

Not only does the CIOT believe the guidance needs improving but rather an overhaul in the area of sub-contractors.

Agency legislation

The legislation applies where a worker personally provides non-excluded services to the end user client via a third party (agency). However, the legislation declines to define ‘agency’ and the legislation could apply to any worker providing their services through a third party.

The EIRR requires an employment intermediary to file a quarterly return where they supply more than one worker to work for an end client. This can therefore mean that a PSC who sends a substitute or sub-contracts some or all of their work is classed as an employment intermediary for the purpose of these rules.

Quite rightly, the CIOT believes that the legislation only applies where the worker contracts with the agency to carry out work for the client of the agency. It is therefore important to establish what the third party’s role is in the contract; ie are they:

  1. supplying labour to perform the services (Agency legislation and EIRR will apply)?; or
  2. delivering an outsourced service for which they take full responsibility (Agency legislation does not apply)?

Two examples are given by the Institute as to what might constitute an outsourced service:

Example 1

Utility PLC enters into a contract with Contractor Ltd to replace a section of piping/cabling. Contractor Ltd undertakes to carry out all work to fulfil the contract (eg dig hole, lay pipe/cable, fill in hole) and is liable for any delays or defects etc. Contractor Ltd engages its own workers to complete the contract.

The workers therefore are not providing services to Utility PLC but are providing services to Contractor Ltd and the ‘normal’ employed v self-employed status considerations apply to that arrangement.

Example 2

A building contractor enters into a contract with a client to build a wall. The building contractor undertakes to provide all materials and its own labour to complete that contract, eg to dig and pour a foundation, including providing the concrete and the workers to carry out such work, to build the wall to such specifications as included in the contract, including providing the bricks and bricklayers, and will be liable for any defects etc.

Here, the client has outsourced the building of the wall to the building contractor, who has undertaken to complete the client. The fact that the building contractor may engage its own workers to undertake particular aspects of the build does not mean that the Agency legislation applies, as any workers engaged by the building contractor are providing services to that contractor and not the client. If the contract had provided for the building contractor to provide workers to the client in order that the client can build the wall then, the Agency legislation and EIRR would be relevant.

By Andy Vessey

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3 thoughts on “Providing labour or a service?”

  1. Freedom fighters

    Maggie2.0 / Hammond

    Who will pay for the projects that do not go anywhere at the MOJ, Home Office and Parliament etc when the middle class self employed contractors leave the country.

    I think it’s time PSC’s start whistleblowing on the failed projects that cost tax payers millions. Whistleblow until your heart is content because the HMRC are coming after you and you won’t get paid sick leave for th added stress x

  2. CX

    The two examples are slightly confusing here – they don’t really talk in the same terms so it’s unclear if they reach the same conclusion in each case.

    It is also unclear if this is of benefit to the standard contractor in engineering or IT – could this be paving the way for working under Schedule D? I can’t really tell.

  3. CX

    Just to add – they key thing here is that the scenarios in the examples are quite different.

    It becomes much more interesting if we compare two identical scenarios, especially where the work can be completed by a one-man band company.

    So let’s say someone has to lay pipes, or build a fence. Utility ‘outsource’ it to a non-employee (not employed by their own firm).
    Let’s also suppose that the work turns out to be:

    1. Do-able by one man (person – henceforth man for short).
    2. Needs more than 1 man.
    (a) The men come from the same agency.
    (b) The men come from different agencies.

    In 1, does it make a difference if the man is via his own company or some large outfit?

    In 2, does it really matter if there are many people form different agencies, including any ‘manager’?

    To me, these are artificial distinctions as far as determining how much tax each worker should pay in each scenario.

    In 2(a) you’d have to look at the possible effect of modern agency “Blanket agreements”. Are the agency then the company to which the work is being outsourced if all the men come from the same agency? Given that this could happen more by coincidence than design, it hardly seems a reasonable basis for determining the tax status of the workers…

    In reality, all these scenarios are ‘outsourcing’ – the work is being done by people who are not directly employed by the Utility Co in this example.

    Using the word outsourcing is not useful – it is an attempt to have large companies seen as being different (treated more beneficially) to small companies.

    They would like us to think in terms of ‘When does a “service” become large enough outsourcing’?’

    To me, the answer is: it doesn’t. In these days of microservice architectures, we are all delivering part of an overall. it doesn’t matter how big or small the cog, it is all just a service – at whatever level of granularity.

    Bottom line: Nice try, no cigar.

    Get rid of Employers NI, then get rid of IR35. It’s a piece of nonsense that just does not stand up to logical scrutiny. And all the pseudo-intellectual arguments in the world will not change that. This is just another one of those.

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