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...