False self-employment deconstructed

Author: Mike Lee – Sales Director, Walker Smith Global 

In December of last year, HM Revenue and Customs (HMRC) consulted on a new piece of legislation which focused on tackling the issue of temporary workers who are subject to significant supervision, direction and/or control being paid on a self employed basis.

HMRC proposed that workers that fell into this category should be deemed to be employed for tax purposes. Legislation was passed which decreed that intermediaries (as defined in the legislation), such as subcontractors and employment businesses, are required to deduct full income tax and National Insurance contributions (NICs) where the temporary worker is subject to (or subject to the right of) supervision, direction or control of anyone in the contractual chain.

When a temporary worker is engaged by or through an intermediary then it will be presumed that there is control over the worker. If the intermediary does not think that there is supervision, direction and/or control then there is a requirement on them to document this information and make available to HMRC (if required) evidence of this. If the intermediary is unable to produce satisfactory evidence when requested by HMRC, the government will look to recover tax and NICs from the intermediary. 

This has had a significant effect on workers operating as self-employed (both CIS and none CIS) via intermediaries, as many subcontractors and employment businesses have taken the decision that these workers fall within scope of the legislation and, aware of the potential liability that could accrue, have insisted they move to Pay As You Earn (PAYE) models such as Umbrella.

What does this mean for the intermediaries?

More than half of the respondents to the consultation raised concerns that the changes were being implemented too quickly. Having considered the feedback, HMRC confirmed that they are still pressing ahead with the changes, which became effective as of 6 April 2014. They did, however, delay the requirement for subcontractors (and other intermediaries) to file quarterly returns (which will give HMRC full visibility of the payment methods being used by intermediaries) to 5 April 2015.

At Walker Smith Global, we believe this new legislation not only places an additional level of red tape on the intermediary but also a real financial risk. Quite simply, the intermediary must verify that the worker is not under supervision, direction and/or control before paying them. If they cannot be confident that the worker is truly self-employed then full tax and NICs must be deducted from the workers wage via a PAYE solution.

Walker Smith Global provides consultancy services and employment solutions to a number of subcontractors who have flexible workforces. It is our aim to ensure that our clients understand the implications of this legislation and provide workable solutions to help ease the administrative burden associated with employing workers via their own PAYE payroll.

For more information on false self-employment legislation and how Walker Smith Global can help your company, contact Mike Lee on 0161 359 325.