The Government announced at Budget 2016 that it will reform the intermediaries Legislation for public sector engagements. Liability to pay the correct employment taxes will move from the worker’s own company to the public sector body or agency / third party paying the company.
The intention is that legislation will be introduced in the Finance Bill 2017 subject to full consultation. Tied in with this, HMRC are to develop a new digital tool that will make the decision on whether or not the rules should apply as simple as possible and provide certainty.
This is proving very contentious.
Under current legislation, Intermediaries must return details of all workers they place with clients where they don’t operate Pay As You Earn (PAYE) on the workers’ payments. The return is a report that must be sent to HMRC at least once every 3 months with intermediaries deciding on the frequency of the reports.
HMRC’s intention is to make employers and engagers responsible for operating new intermediaries legislation and determining whether workers using Personal Services Companies (PSCs) are paying the correct level of tax.
However, through recently publishedresearch, it has become very clear that there is a lot of resistance to the proposed changes and the shift of responsibility.
So, what are the objections?
It is seen as HMRC “passing the buck” with no benefit for HMRC There would be a negative reaction to the employer/client relationship Those affected would have to set up new administrative procedures and systems at additional cost There is a lack of clarity in the proposed new rules, especially taking into account the problems encountered earlier this year when inaccurate guidance was issued that had to be withdrawn An overly complex employment test with an unhelpful test of ‘supervision, direction or control’ which would not help more senior subcontractors.The report concludes: ‘The potential changes were not supported by businesses overall. Many used temporary staff and considered them to be central to the success of their business – primarily in terms of the flexibility and skills they provided. The option of shifting the responsibility for applying the intermediaries’ legislation was seen as undermining their business and the relationship with self-employed workers. Businesses saw the changes as being potentially costly, burdensome and constraining. This concern was shared even by those who rarely used PSCs.’
The report goes on to state: ‘There was a common assumption particularly evident in smaller organisations that subcontractors will deal with their own tax and that this is in the “nature” of being self-employed, therefore many organisations, particularly smaller ones, stated that they do not ask about tax status.’
