Contractors and their tax advisers have been on tenderhooks since last week in anticipation of tax announcements around the use of “intermediaries to disguise employment”, as the Chancellor put it in his autumn statement last Thursday.
Messages from Whitehall tried to contain the anxiety by assuring contractors that any new rules in the 2014 Finance Bill would focus purely on overt attempts to move legitimate employees into artificial umbrella schemes. The situation was not made much clearer by parallel moves covering offshore workers, which go back to a Budget announcement in March that was followed by a consultation document at the end of May.
The new clauses in Finance Bill 2014 add, among other descriptions, the words “personally involved in a service that is being supplied, such as a composite service” to the definition of workers who should be brought within PAYE.
While the new section 44 of Chapter 7, Part 2 ITEPA removes the need for personal service and the obligation for personal service to bring the individual into PAYE, it will not apply if the worker is not subject to supervision, direction or control by anyone else (or has that right).
Employment agencies will be responsible for operating PAYE where an individual receives remuneration for providing, or being involved in the provision of services under the new section 44 definition.
The HMRC impact assessment estimates that around 250,000 falsely self-employed workers will change to employees and have to pay Class 1 employer NICs under the new rules. They will face higher tax and NIC liabilities, but no longer have to pay agency service charges and will be entitled to statutory sick pay and maternity pay (and, if it is relevant, the national minimum wage).
“Some workers will gain overall although for others there will be a net loss,” the impact assessment states in the TIIN.
“There are known to be approximately 10,000 business services companies and it is expected that most of these are likely to be affected in a small way by this measure,” it continues. There are no expected impacts for these firms because they will be already operating PAYE.”
One element driving the new measure is the use of avoidance schemes in the offshore oil and gas industry, which is covered by the same rules - and is signalled by extending the rules to cover those working on the UK Continental Shelf (UKCS). Companies providing those services will be hit with a new certification system under which HMRC will issue a certificate confirming that income tax is being deducted via PAYE.
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John Stokdyk sadly passed away in June 2023. He had been with the site since 1999, rising from news editor to editor in chief, global editor and head of insight. As a roving editor, he investigated the profession's use of technology around the world. He devoted his spare time to technology history and an oddball collection of stringed...
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TIIN = Tax information and impact note
It's the latest in a long line of HMRC/Treasury acronyms for tax announcements. They started using it a year or two ago.
Ironically, the phrase "IR35" comes from the same source - that was the shorthand for the Inland Revenue press release in the 1999 Budget that announced the controversial personal services company measure.