In the 2013 budget the Government announced that they would look to tackle the use of offshore employment intermediaries to avoid Tax and National Insurance Contributions. The AS13 – ACCOUNTING FOR INVESTMENTS then suggested that the government should look to strengthen the existing legislation to prevent any employment intermediaries being used to avoid employment taxes by disguising employment as self-employment.
This in turn has lead to immense industry speculation as to the effect this could have on any intermediaries even those based onshore, and questions as to who the revenue would perceive to be the “intermediary”. There are many legitimate reasons as to why a worker is engaged on a self-employed basis, however there are times when someone is engaged as an employee but classed as self-employed and therein lies the problem. There are a number of benefits of engaging someone on a self-employed basis to the engager, however it has been suggested that the use of intermediaries could have been used to facilitate false self-employment to reduce the risk to engagers of classifying workers on a self-employed basis, technically classed as avoidance!
Although originally thought to have started in the construction industry, the problem could now be more widespread than originally anticipated. So what are the Government looking to do? They appear to be looking to strengthen existing legislation relating to employment agencies by removing the obligation for personal service. The key changes will focus on whether a worker is “subject to, or the right of, supervision, direction or control as to the manner in which the duties are carried out” and in turn, control will look at anyone able to exercise control, or have the right to exercise control about how the work is carried out. For a worker engaged by or through an intermediary then there will be a presumption that there is control over the worker.
If an intermediary perceives that there is no control, direction or supervision or the right of, they will have to provide or have access to evidence of this. If the intermediary is unable to provide this then HMRC may look to recover tax and NICs direct from the intermediary. So how do these changes sit with the Intermediaries Legislation (IR35)? The government has announced, contrary to industry speculation, that the proposed legislation will not disturb the tax / NICs arrangements of the majority of workers who provide their services via a PSC and that the interaction between the agency legislation and the managed service company legislation will remain as it is currently.
This proposed legislation will apply as the current Agency Legislation does, where a worker is supplied by or through an intermediary. The intermediary for this purpose would apply to any structure from the engager, the employment business or the PSC, thus leaving those who currently work through a PSC to consider, as they do now, the agency legislation.
For the proposed onshore self-employment legislation to apply to a PSC, the worker would need:
• To be subject to (or to the right of) control, supervision or direction as to the manner in which the duties are carried out;
• To provide their services personally;
• For all remuneration to be in consequence of providing services; and
• For the remuneration not to constitute employment income apart from this under the agency legislation.
This means that, as is currently the case, the Agency Legislation will not generally apply to PSCs as they will not meet all of these criteria. If neither the agency legislation nor the MSC legislation applies, then the Intermediaries Legislation will be taken into consideration. What this should mean is that anyone with a genuine PSC arrangement taking salary and dividends from a PSC will not be disadvantaged!
HMRC’s proposed reporting requirements will be the same as those previously proposed to inform compliance to tackle offshore employment intermediaries, whereby a quarterly electronic return will have to be completed containing details of any workers the intermediary places who are not already accounted for through HMRC’s RTI system. The introduction of the legislation will look to yield in the region of £500m per year according to Government sources.