HMRC crack down on false self-employment

hmrc-logoHMRC have introduced a number of new measures in the Budget to tackle ‘false self-employment’.  HMRC are strengthening the existing legislation to bring many self-employed individuals into the charge to PAYE and NIC.  This presents a risk for companies who use self-employed workers, as HMRC may determine that the company should have applied PAYE and NIC.

HMRC have introduced new agency rules will take effect from 6 April 2014.  These new rules may present a significant issue where companies use contractors or consultants who are paid outside of the payroll system via an employment intermediary, such as an intermediate company, agency or partnership.  If an individual worker is caught by the rules, any payments made by the client company will be subject to PAYE and NIC (and the company/agency will be liable for employers NI).  Under the new rules, the onus now falls on the individual to prove they are not an employee of the client company in respect of that contract.

Self-employed contractors or consultants who contract directly with the client company (rather than through a personal service company or agency etc) have long been a risk factor as HMRC apply certain tests to determine if they consider the workers to be “employees” and therefore that the company should have deducted PAYE and NIC.  Given HMRC’s push to reduce “false self-employment”, we can expect more focus on this area as well.

HMRC have commented that, in general, consultants or contractors who operate through a personal service company will not fall within these new rules.

If you have any contractors or consultants who are paid outside of payroll, we would recommend that the employment status of these workers is reviewed in light of the new rules.  If you would like to speak to us to understand the impact they may have on your business and what action you may be able to take in response, please contact us.  Given the short timeframe before the rules take effect, we would strongly recommend as a minimum a review of any contracts that may be impacted to determine whether there is any exposure in this area.