Alarm bells and sceptical concerns have been palpable since last week, when the draft Finance Bill 2014 clauses were published.
Commonly referred to as the ‘Agency Legislation’, Chapter 7 of Part 2 of Income Tax (Earnings and Pensions) Act 2003 primarily concentrated on catching individual self-employed workers. But proposals to amend this clause have provoked an air of apprehension as to whether PSCs may also accommodate the legislation’s attention.
As the legislation currently stands, self-employed workers are to be regarded as ‘employed’ by agencies, and PAYE and NIC deducted. In this respect, certain IR35 principles are incorporated, making the aforementioned actions applicable if the individual personally provides their services to a client, and is subject to the right of supervision, direction, or control in terms of the way these services are operated.
However, it has been proposed that as of 6th April 2014, the obligation for personal service will be made redundant, resulting in the control issue being left as the determinative factor to decipher a worker’s legitimate status.
Furthermore, this chapter won’t be restrictive to agencies, but will instead encompass all employment intermediaries.
The motive of the propositions seems to stem from the ambiguity surrounding the construction industry.
It has been revealed that HMRC suspects an estimated 200,000 workers occupying the construction industry are illegitimately self-employed, along with a further 50,000 operating in other sectors.
Despite HMRC assuring that the Government’s proposals are not intended to apply to PSCs any differently to the way they’re currently exercised, contradictory statements found in their consultation document ‘Onshore Employment Intermediaries: False Self-Employment’ have caused a degree of dubiety.
However, succeeding these concerns, it is stated that “as is currently the case, the Agency Legislation will not generally apply to PSCs, as they will not meet all of these criteria.”
Whilst this segment is slightly more encouraging, the vague assurances such as ‘generally’ and ‘all of this criteria’ could still leave crevices of scepticism.
Reporting requirements have also been revealed in the draft clauses, instructing employment intermediaries to, on a quarterly basis, submit electronic returns. These will detail workers who are placed, who are not already accounted for under Real Time Information.
Also, as of April 2015, penalties for late/incorrect returns will be implemented.
Currently, Her Majesty’s Revenue and Custom’s manual explaining Employment Status conditions that the legislation isn’t concerned with contracts between companies and third parties. In this respect, the legislation states that where an agency may have a contract with a company, it would not connect this situation with an employment status.
All being well, this guidance will remain unchanged after 6th April. Having said this, there is currently a necessity for the Revenue to shed clarity on its present position.
Whilst it may not be the intention of HMRC to encircle PSCs within the revised legislation, given the treasury’s renowned ruthlessness, it would come as no surprise if they implemented this to revel in a win-win situation. In other words, if a self-employed individual is not burnt by IR35, the agency legislation could be relied on to potentially catch them out.
It could even be contended that the legislation itself could be primarily exercised, bypassing IR35 completely. This way, only one employment test would have to be proved, as opposed to the several obstacles provided by IR35.
The consultation runs for 8 weeks and the full document can be found by visitinghttp://www.gov.uk/government/consultations/onshore-employment-intermediaries-false-self-employment.
Interested parties wanting to respond to the consultation should take note that this should be done by 4th February 2014.