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Tax Tip

Tax rules for agency workers changes in April

s part of the Autumn Statement 2013, the Government announced that it would introduce rules, effective from 6 April 2014, which are designed to counter false self-employment which it believes is being encouraged by employment intermediaries (staffing agencies/CIS payroll companies and the like).

Helen Smith, Accounts Senior and Head of Payroll of ABDS comments:
“HMRC has highlighted the construction sector as having particularly high levels of false self-employment and has indicated that it will target its compliance efforts in this area. Changes to the tax rules are likely to have a major impact on the cost of construction labour. Construction businesses relying on subcontracted labour therefore need to be aware of these developments because they will, over time, affect subcontractors’ ability to supply labour at current rates.”

We asked Stuart Coleman, Manager of the Tax Department of ABDS to explain what this means.
“The tax rules in this area are complex, so it is worth considering the current position. If a construction worker is an employee they will be subject to PAYE and NIC will be payable just like any other employee. However, if they are self-employed they need to register with HMRC under the construction industry scheme. Importantly, acceptance into CIS is not acceptance by HMRC that the sub-contractor is self-employed.

On the other hand, if the worker is not self-employed, the agency rules will apply such that the agency will need to operate PAYE/NIC on any payments to the construction worker

Conversely, if the worker is supplied via an agency, and is self-employed, the staffing agency is treated as the sub-contractor under CIS and will usually register for gross payment status. If an agency is registered as having gross payment status then it will pay the worker or (in most cases) a third party CIS payroll intermediary, on the basis of the worker’s or the CIS payroll intermediary’s CIS payment status.

It is for the staffing agency or the CIS payroll company to determine if the worker is self-employed or not and this is where HMRC see the poor practice in this sector. In extreme cases, certain CIS payroll companies actually market conversion of construction company employed staff to “self-employed” solutions via the payroll company, the incentive being an instant saving of employer’s NIC. It is this and similar practices that HMRC wishes to target initially but the new tax rules will extend much further than these clear cases of abuse.   HMRC’s perception is that Employer’s NIC has been driven out of the cost of construction labour supply.

The changes that will come into force in April means that agency rules will be changed so that all workers who provide their own services or who are involved in the provision of services to a third party under arrangements in which an “agency” is involved, will fall into the agency rules. The “agency” will be treated as the employer of the worker and income tax and NIC will need to be paid via PAYE. The “agency” will only be able to pay gross if it can show that there is no supervision, direction or control of the worker by any person (i.e. that they are genuinely self-employed).

If there is no evidence, it will have to operate PAYE. This is a significant change.

The “agency” will be whichever company holds the contract with the construction company client (hirer).  HMRC is hoping that this will stamp out the bad practice but commentators suggest that disreputable agencies may just carry on regardless in the hope that HMRC does not catch up with them.

If you need any help and advice with your PAYE or CIS, or looking to outsource your Payroll Department, contact ABDS NOW to discuss how we can help.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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Great with people
Clear and precise with advice
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In touch with issues that face our clients
Mindful of our client’s long term strategic goals
 

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