The Government dislikes self-employment generally as anyone who is self-employed can claim business and household expenses against income but they have decided that obtaining work through an agency is not self-employment at all!
HMRC clearly believe that there are a significant growing number of workers who are falsely self-employed and they consider construction, driving, catering and security to be the most concerning sectors. HMRC have evidence of permanent employees being taken out of employment and moved into self-employment arrangements through agencies (or other intermediaries).
The current rules
At present your agency has an obligation to deduct national insurance and income tax from your income if certain criteria are met. These criteria include the obligation for you, the worker, to provide personal service. It was possible to draft the contract between you and the agency to allow or permit a substitute to provide the services and therefore no tax or national insurance was deducted.
HMRC have stated that in practice this substitution does not occur. HMRC are also concerned that workers may believe they still have the protection of employment rights but, in fact, they do not.
The new rules
The new rules expand the definition of personal service to include “personally involved in the provision” of services. In this case, even if the contract allowed a substitute to be sent, you, the worker, would still be personally involved and therefore the agency would be required to deduct tax and national insurance.
In fact the proposed rules go further than just effecting agencies, the new rules could effect many in the contruction sector when chains of sub-contractors are sometimes used.
The legislation will apply where the worker is:
- subject to (or to the right of) control, supervision or direction as to the manner in which the duties are carried out;
- personally involved in the provision of the services;
- remunerated as a consequence of providing their services; and;
- receiving remuneration not already taxed as employment income.
Where the worker is engaged through an intermediary and all the above conditions apply they will be deemed to be employed by the intermediary for the purposes of taxation. This means that the intermediary (the recruitment company, sub-contractor etc) that contracts directly with the end-user client will have to operate PAYE and NICs in respect of such workers.
The question of whether or not the worker is supplying a personal service will be redundant as it will be the degree of control, direction and supervision that becomes the critical factor.
The contruction industry has been targeted by these rules but other sectors, such as self-employed nurses may also be affected. See our separate blogs on those business sectors.
If you need help in understanding these rules, or in setting up your own limited company so that you are no longer caught by these rules then complete the contact form below or call us on 01737 244298.
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