On 10 December 2013 HM Revenue & Customs issued a consultation document which is largely targeted at the engagement of workers via a third party.
HMRC is seeking comment by 4 February 2014 with a view to legislation being introduced from April 2014. The consultation talks about this being a particular issue within construction.
The proposal is to stop the engagement of workers via a third party on a self-employed basis. The proposal will only permit the engagement on a self-employed basis after April 2014 in cases where the worker is not under the control of the end client.
Therefore if someone is able to supervise and could ask for the work to be done in a different way, or to vary the work to be done, then the worker is likely to be caught by the proposed legislation and be taxable under PAYE.
“Intermediaries will soon need to provide quarterly electronic returns containing details of any workers it has placed who are not already accounted for through HMRC’s Real Time Information System”
In any event, those intermediaries who continue after April 2014 to supply self-employed workers will need to provide quarterly electronic returns containing details of any workers it has placed who are not already accounted for through HMRC’s Real Time Information System.
The consultation document talks about the measures adopted by HMRC over the years and how they have tried to close loopholes on a number of occasions.
I was part of the consultation around seven years ago when significant time was spent by the industry trying to come up with specific rules for construction – these discussions largely went nowhere.
HMRC now says that if it proceeds with the legislation this could be given more teeth by the Targeted Anti-avoidance Rules.
There is a worrying aside in the proposals contained within the consultation. If the obligation on the intermediary to apply PAYE/NIC is avoided by the worker being engaged via a personal service company, then liabilities the PSC fails to meet under IR35 could be levied on the intermediary.
Clearly, those in the industry who have engaged workers via a third party, with the individuals working on a self-employed basis, need to be aware that, depending on the terms of their engagement, this arrangement may no longer work after April 2014.
In addition, if the end client is unsure of how precisely the individual is engaged they need to ensure this is not on a self-employed basis. In light of these proposals, there will need to be consideration given to the basis of future engagement of labour and associated costs.
Those who wish to comment on the proposals can let HMRC have their views by contacting Robert Burton on 0300 052 6659.
Alastair Kendrick is tax director at MHA Macintyre Hudson