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Who is in control? What new intermediary tax rules mean for your business

We have seen a fair amount of publicity surrounding the new tax rules that require intermediaries from 6 April 2014 to operate PAYE and National Insurance on payments they make to workers.

This applied if, based on the terms of the contract, they would be considered as the employer.

Under a revision to these proposed rules, the intermediary would escape the risk of a retrospective claim by HMRC for PAYE and National Insurance if, based on their contract, the worker could be considered self-employed but that individual’s status changed to ‘employed’ because of a working arrangement between the end client and worker personally.

In this circumstance, the tax liability would be sought from the client, not the intermediary.

Beware of risks

It is important that those engaging workers via intermediaries are aware of the dangers of entering into any detailed discussion over the specific engagement with the worker when the intermediary is not operating PAYE and National Insurance.

To avoid difficulty, clients may wish to ensure the intermediary is operating PAYE and National Insurance on payments, as this then lifts the risk to them.

If not, clients need to exercise extreme care in any detailed discussions they have directly with the worker to avoid to being exposed. They may wish to direct the intermediary to provide that instruction.

It is not uncommon for clients to take on the role of assigning projects to workers and checking this is completed to standard.

The client may also be responsible for any health and safety training or testing. If the client takes on these actions, they could change the nature of the status of the worker.

It seems that many who engage workers via intermediaries are unaware of this particular risk.

Many are also unaware of the precise nature of the contractual agreement which sits between the intermediary and worker. In light of the potential exposure that could arise for the client, it is vital that they now assess their risk.

Alastair Kendrick is tax director at MHA MacIntyre Hudson

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