RACS Group is the fastest growing company in the South West Insider Magazine ‘Growth 100’ Company Survey 2013

Compliance Without Compromise

ONSHORE EMPLOYMENT INTERMEDIARIES FALSE SELF-EMPLOYMENT (Pre-law Consultation Document)

We Are Onshore

0845 604 0571 www.racsgroup.com [email protected]

RACS Group have both a Head Office & National Account Management structure designed to provide your agency with a complete service at all times. Our Head Office departments are divided into key functions to enable the swift resolution of any queries, registrations and expenses claims, whilst our team of Account Managers are always available to pop into your offices at any time.

Head Office RACS Group House Three Horseshoes Walk Warminster Wiltshire BA12 9BT

Main: 0845 604 0571 Sales: 0845 604 0572 Fax: 0845 604 0573 Email: [email protected] Web: www.racsgroup.com

Head Office Departments Contractor Registrations Email: [email protected]

Client Care Email: [email protected]

National & Regional Account Managers Adam Jordan

Head Office Tel: 0845 604 0571 Email: [email protected]

Laura Moore

Email: [email protected]

London Tel: 0207 078 7415 Email: [email protected]

Payroll

Andrew Houldsworth

Expenses

Email: [email protected]

Marketing Email: [email protected]

North Tel: 0161 850 2115 Email: [email protected]

Roy Beale

Email: [email protected]

South Tel: 07547 396 678 Email: [email protected]

Live Chat

Lee Crockford

RACS Group also have a Live Chat facility available via www.racsgroup.com where Contractors and agencies can receive instant information and solutions to any queries.

Lori Neil

Finance

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South Tel: 07793 847 228 Email: [email protected]

South West & Wales Tel: 07515 715 750 Email: [email protected]

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ONSHORE EMPLOYMENT INTERMEDIARIES FALSE SELF-EMPLOYMENT

Important Dates... IMPORTANT NOTE: at the time of going to print this is still a Consultation that closes on 4th February 2014. HMRC are welcoming ideas and expecting changes to the final draft, including inconsistent terminology between the consultation document and the guidance.

The proposed legislation is due to come into force on 6th April 2014 - New Finance Bill



Reporting will be required from 5th November 2014 (HMRC directive - Fireworks Night!)



Interest & Penalties for Non-Compliance will come into force on 6th April 2015

What is it and why? (The background) Why are these changes taking affect? The Autumn Statement stated that around £500 million of revenue was lost by way of unpaid employment income (PAYE Tax and National Insurance) and more specifically it was being lost by HM Treasury because of those who classed themselves as selfemployed or by those who were forced to supply their services as a self-employed individual. Autumn Statement 2013 announces that the government will: “Clamp down further on tax avoidance and aggressive tax planning, including 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.” HMRC’s reaction came as a consequence of: • the Government announced its intention to deal with offshore employment (Budget 2013 - active April 2014) • it decided to strengthen existing legislation to ensure legitimate reasons when a worker is engaged on a self-employed basis (ITEPA Changes) • it was common knowledge that false self-employment has been a problem in the construction industry for several years • knowing it was a tricky problem and always had been • they needed to try to find a solution to tackle the solution once and for all • this problem was spreading rapidly to other (non-construction type) industries • national media attention directed at people promoting selfemployment and how money could be saved Obviously, this has led to these new proposals.

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The Government proposal is: • To remove the obligation for personal service • To remove the concept of an agency from the legislation (term has changed) • Where a worker is engaged by or through an intermediary then there will be a presumption that there is control over the worker • If the intermediary is unable to produce satisfactory evidence, then HMRC may pass the tax liability to the agency We strongly recommend that you read through the newly published National Insurance Contributions Bill which was released on 16th July 2013.

It Must Be Made Clear That... HMRC understands the importance of the flexible labour market, the need for self-employment and the specialism and professionalism of those working through their own limited companies. Furthermore, the government realises the overall impact the recruitment industry has in the UK and across the world. Therefore, it is not envisaged that the proposed legislation will disturb the arrangement for the majority of self-employed people. The proposed new legislation will typically apply where a worker is supplied by or through an intermediary.

New Rules (Important) Those who operate and meet ALL of these conditions are caught under this legislation: 1. The individual personally provides, or is personally involved* in the provision of services.

* We feel that the right of substitution (contractually or in practice now does not matter here as there would still be INVOLVEMENT in all cases).

2. There must exist a contract between the client and any third person** under which a. The services are provided or b. The client pays or otherwise provides consideration

** Third person = ‘The Agency’ as in the definition – see later ‘Who is responsible’ section.

3. 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! 4. 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!***

*** The argument here is very complex and many terms are used including: to the manner of, how, where and when etc. to justify control. HMRC have reiterated that they want to catch those who are falsely self-employed, not those who are not! Obviously still to be tested!

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ONSHORE EMPLOYMENT INTERMEDIARIES FALSE SELF-EMPLOYMENT

Who is in scope? Self Employed (CIS) – where control is proven within the rules chain and where points 1. To 4. are met. Self-Employed (Non-CIS) – where control is proven within the rules chain and where points 1. To 4. are met. Any other arrangement where control is proven throughout the rules chain and where points 1. To 4. are met.

Who is out of scope? Employees under a standard PAYE – by virtue of point 3. Employees working via PAYE Umbrella – by virtue of point 3. 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 consider 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. Any generic PSC taking income and dividends will not be disadvantaged by the new Chapter 7 ITEPA arrangements. This doesn’t mean all PSC’s are out of scope although HMRC believe most PSC’s are covered under Chapter 8 ITEPA. Therefore, one must always consider the following in order (as is the case currently): a. Agency Regulations b. MSC Legislation c. IR35 Legislation

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!

What needs to be done? Record keeping and return requirements by the party responsible (e.g. those who hold the contract with the client) It is imperative that the responsible party have full and complete evidence surrounding how decisions were reached. RACS Group’s Best Advice Matrix (BAM) already contains this reasoning and why products are offered one above another. The responsible party must now demonstrate that each assignment has a ‘control’ section and reasons why control by a third party is or is not applicable to the person supplying their services (Questions to be added to all assignment schedules about the chain of control, if applicable).

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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 addresses this since April 2013) nor does it affect Limited Companies (PSCs, Umbrellas etc.): they will be required to report their figures under their own steam as payment by the responsible party was not made to the INDIVIDUAL directly (but typically to a limited company). The returns criteria were originally 10 pages long, this has been whittled down to a few items as shown below: 1. Worker’s full name 2. Worker’s full address 3. Worker’s gender 4. NI number 5. DOB 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. No of hours the payment relates to Having discussed these reporting measures with some very large recruitment businesses and RPOs, the immediate conclusion was that this is going to be a mammoth task to get right in the timescales proposed.

Our suggestion would be to minimise the risk entirely and speak to one of our Compliance Team now. Telephone: 0845 604 0571 Email: [email protected] Website: www.racsgroup.com

Final Note... This is the majority of the information to date. Please remember that this is a consultation period and it expires on 4th February 2014. If you would like to comment directly, please send an email to: Robert Burton (Head of Policy at HMRC) [email protected], or call 03000 526659. Things are likely to change between now and 6th April 2014, including more clarity, greater definitions and typical examples, so watch this space!

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ONSHORE EMPLOYMENT INTERMEDIARIES FALSE SELF-EMPLOYMENT

Question & Points Raised Following Lawspeed’s seminar held in London on January 22nd addressing issues relating to Onshore Employment Intermediaries & False Self-employment, the following questions and points were raised from the packed audience of 120 recruitment professionals: 1. The guidance on Supervision, Direction & Control (SDC) has been widened. Do you think that there is sufficient clarity in this area to rely on SDC not being present as a defence against the application of the legislation? Have you any suggestions as to how the test could be improved? 2. ‘Personally involved in the provision of the services’ - it is difficult to contemplate any arrangement where this will not apply. Even in the context of a genuine PSC or genuinely self-employed CIS contractor. It is understood that this addition was intended to carve out particular composite arrangements, however the manner in which it has been included in the draft legislation and proposed as an example in the draft ESM mean that it has far wider application which will render almost any arrangement caught by ss.44-47. This should be clarified or the test amended. 3. There is insufficient protection for an ‘agency’ (as defined) which provides information on the basis of information it receives from another party in good faith which turns out to be flawed or incorrect. Would you like to see provisions or guidance specifying the order of liability or requiring collection from an intermediary before the ‘agency’ is liable.? 4. The reporting obligations (to report all individuals who are not included on the RTI return) are over-burdensome on the ‘agency’. In addition it is unclear how this will interact with existing RTI reporting in the context of CIS contractors. i.e. Where an individual is on a CIS payroll, will the agency have to declare them as not being on their RTI return and as such be liable to pay PAYE/NICs in respect of that individual? 5. As the ‘agency’ is the party liable to account for PAYE/NICs and for reporting to HMRC where these have not been paid for a worker. Does the additional due diligence requirements (working with intermediaries) & the obligations regarding reporting amount to significant additional administrative burden? 6. A second tier employment business contracting with an RPO, MSP or Vendor should not have to share commercially sensitive information with such organisations as will effectively be required by the reporting obligations. Do you think that there should be further provisions to ensure a level playing field and which would prevent the unnecessary sharing of confidential information? 7. The timeline for the introduction of the proposals is far too short and could have an adverse impact on business with fixed price arrangements in place which go beyond April 2014, particularly in the construction sector. Do you think that the timescale should be extended? 8. Will the proposed legislation as published reduce your organisation’s use of PSCs or other intermediaries? 9. Were you satisfied with the responses given by HMRC representatives at the seminar? If you wish to view these questions and points online and submit your comments directly to Lawspeed, please visit http://tinyurl.com/pkfajf4. To email HMRC directly, please contact Robert Burton (Head of Policy) at [email protected] or telephone 03000 526659.

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Compliance Without Compromise

RACS Group is the fastest growing company in the South West Insider Magazine ‘Growth 100’ Company Survey 2013

Wiltshire

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Main 0845 604 0571 | Sales 0845 604 0572 | Fax 0845 604 0573 | [email protected] | www.racsgroup.com

Rev2/Feb14

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