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The Finance Bill has been subject to much speculation since it was announced in Autumn 2013. As part of the legislation contained within the bill, the ‘False’ Self-Employment (Onshore Employment Intermediaries) legislation will come into effect on 6th April 2014. It will affect self-employed people who are employed via intermediaries such as employment agencies, payroll or umbrella companies (and any business that supplies labour to any another business) who currently only pay taxes as a self-employed person.
The Government have introduced the legislation to clamp down on the use of ‘false’ self-employment models where workers and employers avoid tax and where the employer also avoids their other employment responsibilities.
From 6th April 2014, workers in this situation will have tax and employee National Insurance Contributions (NICs) deducted at the source from their pay by the ‘intermediary’. The intermediary will also have a new liability to pay employer NICs.
The Government estimate that the new legislation will affect around 250,000 people and will increase tax and NIC intake by around £520m next year – some commentators, however, doubt these figures!
This new legislation will not affect:
This new legislation will affect:
This means the temporary worker will pay 3% more NIC than they do as a self-employed person and the employing agency has a new liability of 13.8% Employer NIC contributions.
If there is evidence to show that these contributions have been deducted elsewhere in the ‘supply’ chain, and/or if an agency can show there is an ‘absence of control’ in the worker’s relationship with the client, then the worker and intermediary will fall outside of the legislation.
Criticisms of the legislation:
There has been much debate and criticism of the changes. These include:
The Government ran a consultation period on their proposals up until 4th February 2014 and have published the responses in a document called ‘Onshore Employment Intermediaries: False Self-Employment’.
The Government’s response to the Consultation confirms:
What are the indicators in this guidance that suggest the legislation applies to a worker/intermediary?
What are the indicators in this Guidance that suggest the legislation does not apply?
Possible outcomes of the legislation?:
Recruitment agencies may not wish to take on any workers being paid as self-employed in the chain as it will be difficult for them to know whether the worker is genuinely self-employed or not.
Impact on jobs – to absorb the new costs employers will use fewer staff or will contract with the workers directly, removing the role of the intermediaries.
Self-employed workers may need to set themselves up as Personal Service (Limited) Companies to avoid the legislation. However, ‘anti-avoidance’ measures will be introduced in the legislation to stop intermediaries forcing Contractors into becoming PSC’s just to avoid PAYE and NIC’s (where the only reason the PSC is being set up is to avoid tax).
APSCo (the Association of Professional Staffing Companies), in March 2014, wrote to the HMRC warning that it could face legal challenges to the new legislation under the Human Rights Act and other relevant EU law. It is asking the Government to reconsider how providers of contractors could defend themselves from the actions of dishonest or negligent parties in the supply chain.
The HMRC can levy fines on firms who do not complete their reporting requirements.
In Summer 2014 an employment considered what ‘control’ means – in the context of the old legislation – in the case of Oziegbe V HRMC. You can read the details here.
Watch this space – as developments happen, we’ll update this Guide.
In October 2014 it was reported that the construction industry had been particularly badly hit by the legislation, with 10% of firms that were surveyed saying they had become less competitive when tendering for work, and 60% of firms saying they expected labour costs to rise. At the end of November 2014 the construction union UCATT said that tens of thousands of workers in the industry had been forced to work via umbrella companies and mounted a demonstration on a road-widening project in Wales. In January 2015 the Welsh Government moved to ban the use of umbrella companies on this construction project – so workers would be employed directly through PAYE by the construction company or the employment agency.
In addition in October, staffing firms confirmed they had introduced additional checks for suppliers such as umbrella companies to ensure they met compliance standards.
In April 2015, concerns were expressed by Recruiters bodies that many affected businesses are unaware of the new Act and it’s reporting requirements; and that industries such as the events industry may not even be aware that the new rules apply to them as they may not be aware that they are classed as an ‘intermediary’. We look in more detail at how you work out if you are an employment intermediary business here – as the scope is very wide.
If you are an Employer and need ongoing professional help with any staff/freelance issues, or a Contractor/Freelancer/Employee with a complicated employment related problem, then talk to Lesley at The HR Kiosk – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.
Please note that the advice given on this website and by our Advisers is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.
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Darren Fell, CEO of Crunch, said: "We welcome the government's commitment to adopt the recommendations from the Taylor report. We would however, urge caution that any response does not introduce more red tape, or reduce the ability for entrepreneurs to employ people flexibly."