The Government considers employment intermediaries are increasingly being used to disguise employment as self-employment. The largest business sector affected will be the construction industry. However, there are other sectors such as the driving, catering and security industries where there is evidence of existing permanent employees being taken out of direct employment and being moved into false self-employment arrangements involving intermediaries.
The central proposal is to make a change to the agency legislation. If the agency legislation applies, payments received by a worker are treated as being in consequence of an employment between the intermediary (agency) and worker. This means that the intermediary must deduct PAYE and NIC.
Currently the agency legislation only applies to workers providing their services under the terms of an agency contract. This is defined as:
“A contract made between the worker and the agency under the terms of which the worker is obliged to personally provide services to the client.”
This has led intermediaries to set up contracts which allow the worker to send someone else to do their job and thus it is argued that the worker is not obliged to personally provide services.
The Government proposes removing the obligation for the worker to provide their services personally. Instead, the proposal is that the agency legislation will apply where the worker is:
- subject to (or to the right of) control, supervision or direction as to the manner in which the duties are carried out
- providing their services personally
- remunerated as a consequence of providing their services
- receiving remuneration not already taxed as employment income.
It is proposed that this change will be supported by a statutory returns requirement. The intermediary will need to submit a quarterly electronic return containing details of any workers it has placed for whom it is not deducting PAYE and NIC. The aim of this requirement is to allow HMRC to identify possible cases of non-compliance with the new agency legislation.
The legislation will be amended with effect from 6 April 2014.
The use of intermediaries to facilitate false self-employment started in the construction industry as a way to reduce the risk to contractors of incorrectly engaging workers on a self-employed basis. The Government considers that around 200,000 workers in the construction sector are engaged through intermediaries.