Thursday, 6 February 2014

Decision time for commercial Contractors

This week marked a big date for ‘commercial contractors.’  February 4 2014 was the last opportunity for members of the Recruitment & Employment Confederation (REC) to submit their responses on the government’s potential crackdown on people self-employed through payroll companies. 

In December last year, HMRC released a proposal that would alter the regulations for people working through payrolls or commercial contractors.  The situation is tricky and each person’s interpretation of the proposals will differ.  Fortunately, Simon Noakes, chair of REC Construction – which has been working hard to push back on the consultation – penned a succinct update, giving a great summary of the situation...

In short, when defining employment statuses for tax and National Insurance purposes, HMRC plans to scrap the ‘substitution clause.’  Instead, they’ll look solely at whether the person you supply is under the direction, supervision and control of your client.  So, if a personal supplied by an agency is considered as employed that makes the agency liable for all tax and National Insurance contributions. 

The agency could engage with the self-employed person but would have to save evidence that they’re not under control of the clients – and report regularly to HMRC details of the payments.  This gives a safeguard for HMRC to check how the workers are being treated.  And, if they believe they’re being controlled by clients, the agency will again be liable for tax and National Insurance.

The consequences mean an end to self-employment through intermediaries: anyone who keeps working in this way will automatically be considered as employed for tax purposes and the above rule will apply.

If you’re a Personal Service Company or Umbrella PAYE you’re in luck though – the focus here is on commercial contractors.

If accepted, the changes will come into play on April 6 this year.  That doesn’t leave much time for businesses to adjust to the changes and could cause dramatic increases in labour costs – not ideal...

That’s not the only problem Simon and the REC cite, however.  Because there would be no end-user liability, clients could engage with rogue operators who ignore the new legislation, ultimately putting the compliant agencies at risk. 

Which way will it go?  We’ll keep you posted as the debate continues...and of course we will let you know if the changes are accepted.

Tell us what you think
on Twitter: @primatrecruit

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