False Self Employment

Author: Nicola O'Dwyer

HMRC has recently issued a consultation paper on false self-employment, due to increasing evidence that Intermediary Companies and Employment Businesses are being used to present individuals as self employed to avoid paying national insurance and tax. They also avoid the costs and risks associated with having employees.

The consultation is proposing that Intermediary Companies may be liable to pay tax and national insurance for the individual, if the individual is considered to be a worker for tax purposes and not genuinely self employed.

Currently, there is not any requirement for intermediary businesses/agencies to pay any tax or National Insurance for the individual if they state that the individual is self employed.

The consultation paper indicates that HMRC will look for “control, direction and supervision”, when deciding whether the individual is self employed through an intermediary company/agency. If HMRC considers someone to be a worker, tax and national insurance will need to be paid.

The test will be whether “the individual personally provides or is personally involved in the provision of services to another, and if he or she is subject to supervision, direction or control as to the manner in which he or she carries out his or her duties.”

If HMRC considers that the test is satisfied and that the Company exerts control over the individual then it is likely that the intermediary Company will be required to pay tax and National Insurance. There is also the potential that as national insurance contributions are being paid on behalf of the individual that the individual is entitled to statutory sick pay and maternity pay.

The proposed legislation is due to come into force in April 2014. Therefore, we recommend that you assess the level of control that you have with any self employed individuals, whether they are contracted through an intermediary business/agency.

If you would like us to discuss how this may affect you please contact Nicola O’Dwyer on 01483 411516.