Intermediaries legislation starts to bite

A new law aimed at stopping companies employing staff via intermediaries to avoid national insurance contributions (NICs) is already “hitting the construction industry big time,” according to Nigel May, tax partner at MHA MacIntyre Hudson.

The onshore employment intermediaries legislation, which came into effect on 6 April, will raise about £2.2bn in tax by 2019 by tackling “false self-employment”, HMRC has estimated.

Around 200,000 workers in the construction sector and 50,000 in other sectors use onshore employment intermediaries,  according to the tax department.

But the new legislation will be difficult to enforce and may not raise as much tax receipts as the government hopes, accountants have said. 

The main change in the new law relates to the substitution  of workers in a contract, which was backed as a sign of self-employment by the 2011 upper tier tribunal decision in HMRC v Talentcore.

Under the old rules, intermediary agencies were able to legally avoid paying 13.8% employers’ tax, plus pensions and holiday pay, if workers could send a colleague to do their work for a client on their behalf.

This meant the workers were not providing a “personal service” and were therefore not subject to PAYE tax rules. 

The revised rules close this loophole. So even if a worker can send colleagues to do their work they will still be classed as employed...

Continued...

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Comments

Intermediaries Legislation

simoncd | | Permalink

I have a client who has just got a 6 month contract as an airline pilot through a recruitment agency, which we were going to run through his already established company.

The agency are saying they will not accept this, as they could become liable for the tax and national insurance under this legislation if my client does not deal with it properly. They are offering him employment by the agency or working through a recommended umbrella company.

I accept that my client will be subject to supervision but is this correct ?

 

stratty's picture

Supervision    1 thanks

stratty | | Permalink

Who is supervising the Airline pilot?  Surely he flies the plane?

Intermediaries Legislation    2 thanks

Kate Cottrell | | Permalink

simoncd wrote:

I have a client who has just got a 6 month contract as an airline pilot through a recruitment agency, which we were going to run through his already established company.

The agency are saying they will not accept this, as they could become liable for the tax and national insurance under this legislation if my client does not deal with it properly. They are offering him employment by the agency or working through a recommended umbrella company.

I accept that my client will be subject to supervision but is this correct ?

 

The new legislation is not aimed at those running their own PSC.  The agency needs to satisfy itself that this is the case by checking the PSC, shareholdings etc   There is specific HMRC guidance relating to the interaction between the new legislation and PSC's/IR35. 

Intermediaries Legislation    4 thanks

Planetkiller | | Permalink

Call me cynical but whats the difference from his company to an umbrella company. The answer is the agency run it and make more money along with not helping the clients tax burden. I've come across this a lot recently with smaller sub contractors. The agency think they can bully them into submission and in most cases it works. Its sad really as the only loser is the client as they pay more per week for a service thats a complete joke.

agencies    1 thanks

saudaagar | | Permalink

Why do end users not treat 'agencies' as mere 'recruitment agencies' and obtain the services of 'contractors' either directly as their 'employees' or through the candidates' own PSC? A candidate may run different short term contracts with same or different end users during a tax year under suitable contracts which may not fall foul of the IR35 legislation.

2 sides of the coin

Sheepy306 | | Permalink

From the end users (I assume you mean for example the investment bank in respect of IT contractors) point of view, do you think they would prefer to deal with 1 agency or thousands of individual service companies?Whilst I don't like the agencies, they at least keep things flowing a little bit smoothly by way of standard contracts, initial verification of the PSC, self billing invoices, time sheet checks and payment etc
If the bank only had 1 or 2 PSC's to deal with then yes perhaps I'd agree with you. But that's not the case.
With regards to treating them as employees, I should think this is fairly obvious to an accountant isn't it?

Happy Up North Accountant's picture

Sporadic thoughts

Happy Up North ... | | Permalink

The workers themselves are generally worst off under this change.

Why?

Simple. The payment companies will now deduct not just full tax and national insurance but also employers national insurance.

Previously they were just self-employed and could reclaim various expenses on their end of year tax return.

Now, being an employee, they can reclaim expenses, but umbrella / payment companies are naturally strict on this.

In my experience a surprising number of agencies have bottled it with this legislation and have instructed payment companies to pay all operatives as PAYE. Basically, now the buck has been passed to them, they won't take any risks, at least not until the "control" test has been properly defined by HMRC.

Having first hand experience of this industry the bottom line is that the workers have largely shifted to PAYE and from this someone has to pay the employers NIC. Agencies refuse to have lower margins so it's the worker who suffers.

I don't agree with the comments that agencies will now be administering payroll. One of the benefits of umbrella companies from the POV of the agencies is that they take away all the hassle and provide some legal protection too. Again, all at the cost of the workers themselves !

In my former life I used to

Steve Carlson | | Permalink

In my former life I used to run a construction recruitment agency and still keep in contact with a few people.  I started in the late 90s when most were paid PAYE and some had their own PSC. In the early 00s I was the first one in my area to spot the advantages of the composite company structure and it helped me corner my niche market because I was charging the clients slightly less, paying the workers the same hourly rate through a composite company which meant their weekly take home went up around £100 per week, and still making a healthy margin. They were happy days as the standard calculation for working out take home pay/ charge rate / agency profit included PAYE tax and NIC.  If you removed that from the equation then the savings could be spread across all 3 parties and everyone apart from HMRC was a winner. By 2007 nearly everyone was doing it, and when the MSC legislation came in, some moved over to their own PSC, but more of them switched to getting paid on a CIS4 through a service provider. By this time the only ones who got paid PAYE were the labourers and the skilled/professional workers all got paid through a PSC or CIS4.  The calculation of take home/margin/charge rate was then done on the basis of self employment.  

Who will bear the cost of the new legislation will really depend upon market forces.  If there are more people than jobs than the workers will pay for it, if there are more jobs than people then the client will pay for it, if it's somewhere in between it will be a combination between the two.  The agency may take the odd hit every now and then to fill a job they wouldn't be able to otherwise, but most can't afford to take the hit as it would put them out of business.  A lot of them have also got used to the 'kick backs' they get from the 'service providers' where they get anywhere between £2pw-£7pw for every person they put through the service provider or have set themselves up as service providers and charge the workers and extra £20-£25 per week for using it. 

Agencies have now got used to washing their hands of all employment legislation and liabilities so there will not be a mass surge of PAYE payrolls being run by agencies.  They will continue to put them through the 'service providers' although these people now will not be paying them on a tax efficient self employed basis, but will be paying them through an umbrella service where they pay part of their wages as tax/NIC free expenses and the rest as PAYE.  The charges for this will continue to be around £20-£25 per week, even though for many people they won't have enough allowable expenses that the tax saving will offset the fees. A lot of these workers are sitting on tax time bombs as I've seen people getting paid expenses gross for disallowable expenses, with one fairly large company allowing workers living a few miles away from site to claim their shopping bills in Tesco as an allowable expense!! As far as these people are concerned they are getting paid PAYE so they won't go an see an accountant.  

The technical knowledge of everyone involved in the sector is also very poor.  You wouldn't expect your average worker to be on top of this but the agencies themselves don't really have a clue, and most of the 'service providers' aren't much better.

Why not employ someone direct?    3 thanks

Donald6000 | | Permalink

In the old fashioned world that I come from, people would employ other people direct and pay their tax and national insurance contributions. Now, nobody is allowed to be in the employ of anyone without a zero hours, intermediary, self employed, round the houses, fiddle the law, tax and all regulations contract.

These are all plainly devices to pay the minimum or no tax devices, on the part of the agencies. We have become the most fiddling and regulation bucking country in the western world.

In my view people should pay the tax that is properly owed and the national insurance as well and stop trying to think about fiddle diddle the whole time.

These people who do these things would soon complain if they went into hospital and the surgeon did half a job on them. Yet when it comes to diddling, they do half the job that is required.

Perhaps people want to join the long line of those who are now being slung into jail. We are becoming a preposterous fiddling little island.

 

 

johnjenkins's picture

This all started    2 thanks

johnjenkins | | Permalink

when Gordon Brown decided to attack the self employed and it really is now a complete mess.

If the Government via HMRC still keep trying to get the most tax and NIC they possibly can out of tax payers then this will continue.

My view is that Government and HMRC should stay well out of employment status and leave it up to the workers and work givers. They might even find the coffers increase as happy workers are productive workers.

We have been here before

AndrewV12 | | Permalink

Every 10 years HMRC have a purge on self employed workers, its always construction workers who are looked at the most.