A seminar held by the recruitment law specialist Lawspeed has identified a number of problematic key points arising from the Government's Consultation on Onshore Intermediaries -False Self Employment. As well as an audience of recruitment agencies, umbrella companies, CIS contractors and accountants, several senior HMRC representatives were present.
The objective of the seminar was to challenge the proposals and identify problems that may be caused to the recruitment, contractor and construction industries. It is hoped that the Government officials, who were present, might taken these
The consultation included draft legislation that the Government plans to use to bring sham self employed individuals, whom it believes should be classed as employees for tax purposes, into the scope of the PAYE rules. Amendments are proposed to legislation known as the agency legislation, that has been in place since 1976 and which obliges agencies to use the PAYE rules when paying supplied workers.
The Government believes these rules are being avoided by some by wrongly claiming individuals are self employed, thus depriving HMRC of tax and national insurance and forcing individuals to lose some state benefits.
While HMRC has continually pointed out that these new rules will be aimed at mass marketed schemes which target lower paid workers, there are concerns among some contractors that the 'law of unintended consequences' might extend it to them.
It has also been pointed out that this amounts to a changing of horses mid-race as some large jobs - particularly in the construction sector - could have been priced without taking this into consideration. Yet the intention is to bring in the new rules in April 2014.
Adrian Marlowe, managing director of Lawspeed said: “There are some significant problems. We believe the proposed scope extends far too widely, as it appears to catch every supply or subcontractor arrangement with few exceptions. The only defence to a claim by HMRC would be that the worker was not subject to any ‘control’, a complex legal issue which many will find hard to judge and which require a case by case analysis.
"This is guaranteed to lead to uncertainty wherever a genuinely self employed individual wishes to be paid gross. Also because the agency dealing with the end user will be liable for compliance there could be serious administrative problems wherever there is a chain of supply; those agencies at the top of the chain will be tempted to either cut out intermediaries or require individuals to be paid through specified channels or designated umbrella companies in turn having negative commercial fallout for chain operators.
“There are also likely to be serious consequences from the timeline planned for implementation, as the Government hopes to bring in the new rules in April 2014. Where projects are already agreed and contracted to run beyond April 2014 based on labour costs that reflect the current legislation, those labour providers caught by the new plans will be hit with a 13.8 per cent charge for employers NICs plus possible cost claims from the workers who will receive a lower net pay.
"This may be enough to wipe out the provider who has insufficient finance in place and who has won the business on the basis of a properly costed quotation reflecting the current tax position. This in turn could have significant knock on effect for others in a chain, particularly in the construction industry, with the result that projects could be delayed and jobs lost.”
The Government is understood to believe that there are some 200,000 false self employed workers in the contraction industry who are paid in accordance with the CIS tax scheme.
Another area where there is scope for some confusion is where workers operate through a limited company. Provided they are paid by way of dividend or employment income by the company these are not brought into scope. However, it was pointed out that it was always possible for a limited company to pay in a different way, for example by way of gross payment and the worker may not be a shareholder.
Whilst many will not pay that way, the risk of incorrect payment leaves the agency open to risk and therefore will require yet further due diligence, when no such requirement currently exists. Mr Marlowe pointed out that even so called personal service companies pose a risk unless they only ever deploy the shareholder/director.
Mr Marlowe said: “if this is left as it now stands there is little doubt that the draft legislation will have far reaching consequences beyond those intended by the measures.”
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Rules on false self-employment go too far - Shout99, Feb 2014
Government fails to understand complexities of onshore intermediaries - Shout99, Feb 2014
Consultation on 'false self-employment' comes to an end - Shout99, Feb 2014
AS2013 (5): Government consults on 'false self employment' - Shout99, Dec 13
AS2013 (2): 'False self-employment' and the fear of unintended consequences - Shout99, Dec 2013
Onshore Employment Intermediaries: False Self-Employment - HMRC Consultation document.
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Susie Hughes © Shout99 2014