What is it?
Recently published guidance and information for agencies, contractors and other interested parties which notes HMRC's interpretation of the new Onshore Employment Intermediaries legislation which came into effect on 6 April 2014.
Who should read the guidance?
Whilst the guidance can be seen as a useful point of information for anyone interested in the new legislation, primarily the guidance is aimed at those parties who have an active role in the supply chain, so this would include end clients, agencies, providers and the contractors themselves. However, given the responsibility for ensuring the correct application of the new rules lies with the primary intermediary, i.e. the agency or RPO which has been interposed between the worker and the end client, it will be of most interest to them.
What are the key points of interest?
The guidance confirms HMRC are placing a significant responsibility on any intermediary who is involved in the placing of workers who operate in a self-employed capacity. In our previous commentary, PayStream noted the fact that the new rules will apply where the worker is subject to (or subject to the right of) supervision, direction or control of anyone in the contractual chain with the result being a requirement on the agency to operate PAYE as though the worker was an employee.
HMRC will automatically presume control is present (actually or a right of) unless it can be demonstrated otherwise and states the need for documentary evidence to support a worker being treated as outside the legislation. The guidance specifically notes that obtaining a signed agreement from the worker that they are not subject to (or to a right of) supervision, direction or control by anyone, would NOT be sufficient evidence to treat the worker as outside the legislation. HMRC would expect further documentary evidence.
Unfortunately the guidance is light on the level of detailed evidence which would satisfy HMRC that a worker can be paid as a self-employed individual, although it is clear HMRC would expect the workers relationship with all parties in the contractual chain to be considered, i.e. the end client, agency and provider.
Within the guidance, HMRC have sought to use examples to highlight situations where certain types of worker can be both inside and outside the scope of the agency regulations. Whilst the examples are informative, needless to say what matters most is the need to consider the working arrangements of each individual worker on its own merits.
What about Umbrella workers and PSCs?
The guidance confirms HMRC would regard an umbrella worker as being unaffected by the new rules as they are employees and receive any payments as employment income; whilst for individuals who choose to provide their services via a PSC, the guidance confirms that as most payments made to a PSC director are a mixture of salary (employment income) or dividends (distribution of taxed profits) then the new rules do not apply.
Are there any measures to stop abuse of the new rules?
Throughout the whole process of considering how to tackle the perceived false self-employment issue, HMRC have been very clear in their intent to tackle any abuse of the new rules to the extent that a Targeted Anti-Avoidance Rule (TAAR) was included in the new legislation, to stop agencies seeking to avoid the new legislation by using schemes or arrangements which had no purpose other than to step round the new rules. Specific points which would cause HMRC to seek to invoke the TAAR, would be the mass switching of workers previously paid as self-employed to PSCs, where the agency insists the only way a worker can be paid would be to set up their own PSC.
In addition, the guidance also highlights the ability of HMRC to seek to recover PAYE/NIC liabilities from the directors of any company, which has provided fraudulent documentation in order to avoid the new rules or to have fallen within the TAAR.
The guidance is useful in that it provides an insight in to how HMRC envisage the new rules to be applied and points towards the likely areas where they may seek to focus future compliance efforts.
However, it is worth highlighting that the guidance is only that, a guide, and that the new legislation has not yet been tested in a court of law. The guide is simply HMRC's wish on how the legislation will be interpreted rather than a position which has been based on case precedent and/or custom and practice.