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