Onshore Employment Intermediaries (Agencies)
Some employers use onshore agency arrangements to save13.8% NIC, avoid having to operate PAYE and save other employment-related costs such as redundancy pay, sick pay and pensions. These arrangements are not always effective but the Government sees them as abusive “false self-employment” and issued a consultation document ‘Onshore Employment Intermediaries: False Self-Employment’. The result of that consultation is a change to the onshore intermediaries rules that apply where:
- a worker personally provides, or is personally involved in providing services to a client;
- the client does not contract directly with the worker but with a third person (“the agency”); and
- the remuneration that the worker receives would not otherwise have been taxable as employment income.
Red card for substitutes
The introduction of “is personally involved” is a significant change reflecting the fact that contracts often include ‘substitution clause’ which states that the worker is able to send someone else to do the work, when in reality this is not the case. Whether the proposed change will enable HMRC to get around rights of substitution remains to be seen.
Supervision, direction or control
The new rules are meant to include all workers engaged through agencies unless they can show that they are not subject to supervision, direction or control by any other person. This appears to be an attempt to cut out the influence of general case-law on employment status cases. Whether the courts will see it that way will only become clear in the fullness of time.
The new rules do not apply to “excluded services”, defined:
“(a) services as an actor, singer, musician or other entertainer or as a fashion, photographic or artist's model, or
(b) services provided wholly —
(i) in the worker's own home, or
(ii) at other premises which are neither controlled or managed by the client nor prescribed by the nature of the services.”
That definition is largely unchanged but, perhaps critically, the definition of an ‘agency contract’ as an arrangement under which the worker is obliged to personally provide their services to the client will be removed.
In any case caught by the revised rules the agency will be the ‘employer’ for all PAYE and, NIC purposes.
RTI and other reports
The intermediary will have to submit a quarterly electronic return containing details of workers who have not already been accounted for through RTI. Details of the information HMRC propose to require are set out in the consultation document and are the same as for offshore intermediaries (see separate item).The first quarterly return will be due on 31 October 2014 to allow intermediaries time to put systems in place. Penalties for late or incorrect returns will not apply until after 5 April 2015.
HMRC will start targeted compliance activity from the start of 2014/15.
There are also proposals for changes to the rules affecting offshore intermediaries: Click here for Mazars’ comments.