Spring 2014 Newsletter
Removing the mask
The Government and HMRC are aware that increasingly some companies and employment businesses are using employment intermediaries to disguise the employment of their workers and are treating them incorrectly as self-employed. This is primarily to avoid employer National Insurance contributions (NIC) and reduce the costs associated with workers employment rights, such as the National Minimum Wage, Statutory Sick Pay and holiday pay.
The Government are consulting on strengthening the existing legislation to ensure that the correct amount of income tax and NIC are paid where the worker is, in effect, employed. This legislation is expected to take effect from April 2014.
The largest business sector which is likely to be affected is the construction industry but there is apparently widespread evidence that other sectors including the driving, catering and security industries are using these arrangements.
So what are the proposed changes?
The central proposal is to make a change to the agency legislation. At present if this legislation applies then the intermediary must deduct PAYE and NIC. However, this legislation only applies where workers provide their services under the terms of an agency contract in which the worker is obliged to personally provide services to the client.
Some intermediaries have set up contracts which allow the worker to send a substitute to do their job (even though this often does not occur) and on this basis it is argued that the agency legislation does not apply.
The Government propose to amend the legislation and remove the obligation for the worker to personally provide their services. Instead, where there is a supply of personal services and the end user exercises control over the worker the agency legislation will apply. This means that the payments from the intermediary to the worker will be deemed employment and, as a result, the intermediary must operate PAYE and NIC.
In order to assist HMRC in identifying possible cases of non-compliance with the new legislation, it is proposed that there will be a new statutory returns requirement. The intermediary will need to submit a quarterly electronic return containing details of any workers it has placed for whom it is not operating PAYE and NIC.
We will update you with any developments once the new legislation is finalised. In the meantime if you would like any further information please contact us for advice.