The 2013 Autumn Statement introduced legislation that targeted certain Employment Intermediaries that disguised employment as self-employment which was particularly common in the construction industry.
From 6th April 2014, personnel must be treated as an employee for Income Tax and National Insurance purposes if the personnel:
- is placed with a UK-based client
- personally provides their services to the client
- provides their services to the client, or is paid for their services, because of a contract between an intermediary and the client (or someone connected to the client)
- is, or can be, supervised, directed or controlled by someone as to how they do the work
- isn’t having the payments they receive for providing their services already treated as employment income
As a contractor working through their own Personal Service Company is deemed not to be controlled in how they do their work, this legislative change has no impact.
However, a consultation finished on 25th November 2014 on a second piece of legislation that comes into effect from 6th April 2015 whereby Employment Intermediaries must report on a quarterly basis the details of personnel they place with clients who are neither direct employees nor being treated as employees. In other words, contractors.
The Employment Intermediary will be required to provide the following information for each contractor:
- title and full name
- date of birth
- address and postcode
- National Insurance number (if they have one)
- passport or national identity card number (if they don’t have a National Insurance number)
- unique taxpayer reference (if they are self-employed or a member of a partnership)
- how the contractor was engaged to do the work – through a partnership, limited liability partnership, self-employed, limited company or another party that operated PAYE
- start date of each engagement
- end date of the each engagement (if there is one)
- number of hours worked during the reporting period
- total amount paid
- the full name or trading name of whoever received the payments. Where this was a limited company, the company registration number
- whether the payment included VAT
The deadline for the report covering the 6th April to 5th July 2015 quarter is 4th August 2015.
It is important to stress that this legislation remains targeted at Employment Intermediaries avoiding employment taxes and statutory employment rights.
Furthermore, from the contractor’s perspective, the IR35 legislation remains unchanged with the basket of factors (including substitution, control and mutuality of obligation) used to determine whether or not a de facto employment exists.
Notwithstanding the HMRC’s primary motivation, this new legislation will provide them with a raft of data on each and every contractor.
As we know from our clients, a Personal Service Company can be operated in a myriad of ways. In addition, other taxes such as Corporation Tax come into play.
As a result, the HMRC will be hard pressed to follow a global approach in the future in the same way as there are currently with Contractor Loan Schemes.
However, the warning signs are there. We cannot overstress the importance of taking steps to underline that your Personal Service Company is a business and not merely a shell to avoid tax.
As we have consistently advised our clients, the era of remuneration comprising a minimal salary below the employment tax thresholds and high Dividends should be consigned to the history books. This will be all the more imperative from April.
Our key recommendations are:
- to ensure that there is a contract of employment in place between you and your Personal Service Company;
- and to pay a salary that is commensurate with the role that, at the very least, is at the National Minimum Wage level.
In addition, there are other steps that you could take such as:
- to invest in a domain, website and email account;
- to run a home office equipped with all the necessary paraphernalia for a business;
- to have all the relevant business insurances;
- to offer employee benefits like private medical insurance or a pension scheme;
- or to subscribe to the professional bodies and publications applicable for your sector.
We anticipate that this newsletter will generate a large number of questions and, as a result, we are offering a free Q & A forum. If you email your question to us at email@example.com by Wednesday 14th January, we will include it and our response in a Q & A newsletter we will be publishing on Friday 16th January.
If you have deeper concerns over your Personal Service Company, we have a limited number of free Company Health Checks available which are offered on a first come, first served basis and without obligation. Please email us at firstname.lastname@example.org for more information.