The Onshore Intermediaries Legislation that has recently been introduced is slowly starting to cause some concern across the recruitment industry and in agencies who employ contractors and freelancers as it is their businesses that will be bearing the brunt of the changes. The legislation, which aims to clamp down (even further) on intermediary services who cover their workers employment by declaring them as ‘self-employed’ (thereby avoiding higher rates of tax and NI) means they will be forced to take on new levels of administrative and legal compliance.
Agencies are therefore going to need to look at their employee supply chain and work out a way to ensure that they do not fall foul of the new legislation. They must realise that the burden of proof will always be 100% theirs and they must therefore know how every single one of their workers that they place with companies is being paid and / or employed, irrespective of how many different intermediaries there might be in between themselves and the contractor.
The most important point for an agency to bear in mind is that their workers have to be regarded as employees when every one of the following criteria is met:
- Is their worker going to be subject to (or will the client have right of) supervision, control or direction regarding the manner in which their duties are to be carried out? This test has not been defined in the legislation and there is as yet little in the way of case law to base interpretation around – thereby making it hard to disprove. At the moment HMRC has taken the initial position that workers will all be subject to control and the agency must prove otherwise.
- Is their worker providing services personally (and yes, for this criterion this will always be the case)?
- Is their worker to be remunerated as a result of providing their services (applying if the individual in question is to receive payment that is directly linked to the work that they do)? HMRC have since confirmed that PSC’s (one man companies) will be excluded from this legislation so long as the worker is a director or shareholder of the company and so long as they remunerate themselves through salary or dividend.
- Is their remuneration not already being taxed as employment income (which means that if their worker is being employed by the agency or umbrella company and therefore their pay is subject to PAYE the legislation will not affect them)?
Should all four of these criteria be met then the recruitment agency in question must deduct NI and tax from all of their payments to the worker / contractor. Furthermore, HMRC will be presuming that the worker in question is under direction / supervision / control unless said agency can prove different.
For agencies and contractors the answer, it seems, is simple. Firstly the agencies should check whether any of their contractors are still using any self-employed schemes. Secondly, if that agency then discovers that they have quite a few contractors who are self-employed then they should indeed be wary of any payroll providers who offer large-scale PSC migration, because this could be all that is needed to set off a HMRC investigation based on the TAAR regulations. Finally, for contractors and agencies umbrella solutions remain the best option as workers will be receiving payments taxed as employed income using PAYE and NI and will therefore be unaffected by the new legislation.