This is from our advisors at Accountax Consultancy – Contractors please take note

Onshore Employment Intermediaries: False Self-Employment

Following on from the Autumn Statement 2013 last week HMRC has now issued a consultation document and draft legislation to tackle the use of intermediaries to disguise employment. The amendments will change the circumstances under which a worker is caught by the legislation. The proposals look to extend the current agency rules by widening the definition of agency and removing the requirement for personal service.

While it is worth bearing in mind this is just a consultation at the moment and we have all seen proposals that have been introduced with a fanfare and then drastically changed at the last minute or that quietly disappear. This was seen recently with the Offshore Employment Intermediaries consultation.

As the rules currently stand if a company supplies individuals to a client and there is both a requirement for personal service and supervision, direction or control as to the manner in which the services are provided the agency must account for PAYE and NI on payments to the individual. The individual is effectively treated as an employee for tax purposes.

The proposed new test will focus on the nature of the control the worker is subject to and will eliminate the importance of the personal service requirement. Where a worker is caught by the new test income tax and both employers and employee’s NIC will continue to be due under PAYE from the intermediary as is the case with the current position.

Anybody engaging individuals on a self-employed basis needs to take note of the proposals and be aware that as of April they may be required to operate PAYE on all payments unless they can demonstrate there is no supervision, direction or control within the contractual chain. The consultation ends on 4 February so watch this space.

Umbrella companies employing individuals under PAYE and personal service companies should not be affected by the new rules.

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