The new ‘false self employment’ tax legislation applies from 6th April 2014 with no exceptions, leaving those agencies that have arrangements to pay their contractors gross at risk from that date, warns the recruitment law and compliance specialist Lawspeed.
Adrian Marlowe, managing director of Lawspeed, explained: “Recruitment agencies contracting directly with hirers are liable for PAYE payments if the new rules apply. This means that they should be diligent right now in checking that the individuals they supply are not being paid gross by the intermediaries they are engaged through. This issue is of particular importance to those operating in the construction industry, where it is common for gross payments to be made under the CIS tax scheme. There is no provision in the law that allows agencies to put this off, leaving those who are slow to pick up on it at greatest risk of having to make back payments to HMRC.”
The new law, set out in the Finance Bill 2014, amends the agency tax legislation and requires PAYE, including employers NICs, to be applied to payments to the individual unless it is shown that the individual is not subject to any person’s supervision direction or control as to the manner of the services (SDC test). This applies to all and any intermediaries including personal service companies with the agency contracting with the client. Debts of liable agencies can now be transferred to directors personally of those companies. The new rules however do not apply if the individual is already paid for the work done by way of employment income.
Marlowe continued “The SDC test is very difficult to assess, and HMRC will start with the presumption that there is control, leaving the agency to establish the opposite. This is against the backdrop that our reading of the law is that it applies to any services performed by an individual whether through a company or otherwise, regardless of sector.”
“We have already seen some simplistic methods to address the tax, for example by simply asking the client whether there is SDC. In our view this would not normally suffice to establish the position one way or another and we certainly could not advise agencies to rely on this when their directors face the draconian penalty of personal liability if they get it wrong.”
Lawspeed is due to explain the rules and the options that arise for compliance at its forthcoming false self employment seminar in London on 15 April 2014 at which HMRC officials will be speaking.