HMRC’s proposal to combat false self-employment was to amend the current Agency Legislation contained in Chapter 7, Part 2 ITEPA 2003. The legislation is contained within Chapter 7, Part 2, Income Tax (Earnings and Pensions) Act 2003, section 44 (thus often referred to as S44). From 6th April 2014, should a worker be deemed an employee, the agency will be responsible for deducting the PAYE and NIC, from all the income earned by the worker.
Despite agencies misconceptions about this legislation, they have always been able to provide workers to end users on a self-employed basis provided that:
Draft Finance Bill 2014 however, proposed to remove the requirement for personal service and focus solely on the right of control as the determining factor as to whether a worker is self-employed or not. Where a worker is engaged by or through an employment business then there will be a presumption that there is control over the worker and it will be up to the employment intermediary to prove otherwise.
Certain qualifying conditions must exist for the Agency Legislation to be applicable as follows;
The consultation document contained some rather contradictory statements about the effect of the proposals on PSCs, however since then HMRC have issued a document titled “Interaction of Personal Service Companies with the Proposed Changes to Chapter 7 S44-47 ITEPA 2003 (The Agency Legislation)” which sets out various conditions which must exist for the Agency Legislation to apply to a PSC, as follows:
“For the proposed new Agency legislation to apply to a worker providing their services through a PSC, all of the following qualifying conditions need to be met:
As is currently the case, the Agency Legislation will not generally apply where a worker is engaged via a PSC, as all the above criteria will not normally be met. This is because:
Further clarity can also be found within HMRC’s own Employment Status Manuals ESM 2004.
From April 2020, organisations hiring off-payroll workers will now be responsible for determining the IR35 status of their contractors. Find out more.
Learn more about the Managed Service Company (MSC) legislation and what it means for you as an accountant providing services to UK contractors.
HMRC issued guidance on Supervision, Direction or Control in response to the consultation document, which defines each of the terms (as follows). The document also provides some detailed examples, of where contractors may or may not fall under Supervision, Direction or Control. Further guidance can be found here.
As from 6th April 2014, employment intermediaries and agencies are required to submit a simple quarterly electronic return containing details of any workers not accounted for through RTI. The first quarterly return needed to be submitted on 31 October 2014.
Penalties for incorrect or late returns were not implemented until April 2015, however should the report be late, a penalty will now automatically be charged.
The amount of the penalty is based on the number of offences in a 12-month period.
If a report is submitted which is incorrect, penalties may also apply. An incomplete report, for example a report where information is missing, will count as an incorrect report. Penalties for incorrect reports will be determined by HMRC on a case-by-case basis.
Where there is a continued failure to send reports, or where reports are frequently sent in late, a penalty of up to £600 applies for every day that the report is late.
For more information, please contact us on 0116 2690992.