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HMRC Update

AOG RESOURCES keeps updated



(Pre-law Consultation document)Are you self-employed?Can you prove you are self-employed?Even if you hold a CIS card this does not mean you are self-employed?

  • The proposal legislation is due to come into force on 6th April 2014
  • Interest and Penalties for Non-Compliance will come into force on 6th April 2014
  • Reporting will be required from 5th November 2014 (HMRC Directive)

What is it and why are these changes taking place?

The Autumn Statement stated that around £500 million of revenue was lost by unpaid employment income (PAYE Tax and NI) and was being lost by HM Treasury because of those who classed themselves as Self-employed. Also by those who were forced to supply their services as a Self-employed individual.

What is it and why are these changes taking place?

  • It decided to strengthen existing legislation to ensure that there is legitimate reasons when a worker is engaged on a Self-employed basis
  • The Government announced to deal with offshore employment
  • The problem was spreading to other (non-construction type) industries
  • False employment has been a problem in the construction industry for several
  • It was and always has been a tricky problem
  • Media attention directed at people promoting Self-employment and how money could be saved

Autumn Statement 2013 announces that the government will:

‘Clamp down on tax avoidance and aggressive tax planning, preventing employment intermediaries from disguising employment as Self-employment to avoid tax, and by introducing a new power requiring taxpayers using avoidance schemes that have already been defeated in the courts to pay the tax they are trying to avoid upfront’.

The Government proposal is:

  • Where a worker is engaged by or through an intermediary then there will be a presumption that there is control over the worker
  • To remove the concept of an agency from the legislation (term has changed)
  • To remove the obligation for personal service
  • f the intermediary is unable to produce satisfactory evidence, then HMRC may pass the tax liability to the agency

HMRC understands the importance of the flexible labour market, the need for Self-employment and the specialism professionalism of those who work through their own limited companies. The government realises the impact the recruitment industry has in the UK and nationwide. Therefore, it is not envisaged that the proposed legislation will disrupt the arrangement for the majority of Self-employed people.

The new proposed legislation will apply where a worker is supplied by or through an intermediary.

New Rules (important)

Those who meet ALL and of these conditions are caught under this legislation:

  • (1) There must exist a contract between the client and any third person under which
  • (a)The services are provided
  • (b) The client pays or otherwise provides consideration
  • (2) The individual personally provides, or is personally involved in the provision of services
  • (3) HMRC actually says that they presume ‘Control’ but not Direction or Supervision – so to fall outside of scope ‘Control’ must always lie with the individual supplying the work

HMRC have reiterated that they want to catch those who are falsely Self-employed, not those who are not!

  • (4) If remuneration receivable under or in consequence of the agency contract is not otherwise already treated as employment income (huge implications when paying gross).
    The biggest change – Direction, Supervision and Control no longer a condition – It is presumed by HMRC that IT does always exist!The individual must now prove the reverse. That Direction, Supervision and Control does not exist to fall outside of scope!

Who is in scope?

Self-Employed (CIS)
where control is proven within the rules chain and where the points set out above are met.

Self-Employed (Non-CIS)
where control is proven within the rules chain and where the points set out above are met.

Any other arrangement
where control is proven within the rules chain and where the points set out above are met.

Who is out of scope?

Employees working via PAYE – by virtue of point 4

Employees under a standard PAYE – by virtue of point 4

Employees working through their own Limited company where PAYE income is paid or where dividend income is paid, it is considered that dividends are not caught by the agency legislation – by virtue of point 3 and 4

Also considered an arrangement where gross income is not paid directly to the worker!

NOTE: The proposed agency legislation always needs to be considered when a PSC supplies work to a client, not only when this is achieved via an employment business but also when the PSC itself contracts directly with a client.

Who is responsible?

The responsible party for reporting and ensuring that the individual supplying the service is paying the correct amount of tax and national insurance (Self-Employed or Employed) is defined as ‘the party who holds the contract with the client’ – in the vast majority of cases this will be ‘The Agency

Transfer of debt liabilities will arise here as well as interest, penalties and even ‘naming and shaming’ for consistent avoidance.

Who is responsible?

Requirement for record keeping
(5th November 2014)

Records must be kept and submitted monthly for all individuals who are paid Gross directly by the responsible party. It does not include those who are otherwise paid employment income (RTI address this since April 2013) nor does it affect Limited Companies (PSC’s, etc), they will be required to submit their figures as payment by the responsible party was not made to the individual directly (but typically to a Limited Company).

  1. Workers full name
  2. Workers full address
  3. Workers gender
  4. NI number
  5. Date of birth
  6. Where not a UK citizen their passport number or ID card number
  7. Reason why income tax and NICS has not been deducted by the employment intermediary
  8. Name and address of business who is supplying the worker to the employment business
  9. Number of hours the payment relates to

The immediate conclusion is that this is going to be a mammoth task to get right in the timescale proposed.

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