1. Why is it a talking point now?
New rules on 6 April stop the engagement by intermediaries of labour only workers on a self-employed basis. These rules require the intermediary to apply PAYE and national insurance on payments they make. HMRC believes that intermediaries have been used to allow workers to be engaged on a “bogus” self-employed basis when, on the basis of the work they do, they would normally be considered an employee.
2. Why are these changes important?
Whilst it is the responsibility of the intermediary to comply with the change in rules it is likely this revision will impact on the cost of procuring labour via intermediaries and if intermediaries are going to have to bring these workers onto payroll then the intermediary will want to pass on the increased costs to the contractor who is using the worker. This could impact on costs of projects when labour was calculated on the historical costs of engaging workers via an intermediary.
3. Are there possible ways of avoiding PAYE/national insurance?
HMRC anticipates that the intermediaries will find ways of avoiding bringing workers on to the payroll. It says if it finds these rules not being complied with it will consider introducing anti avoidance rules which could be applied retrospectively. It may be possible in some instances to change the basis of the contract with the worker to avoid PAYE and national insurance, for example if the basis of the contract moved from a “labour only” arrangement to risks attached to the worker personally.
4. What if you don’t do anything?
If the intermediary fails to apply PAYE and national insurance then they will be liable, so on this basis there is little risk attaching to the contractor personally. The contractor needs to be careful to ensure that the basis of the working practice is not such that HMRC could say that the engagement is between the contractor and worker (ignoring the intermediary).
5. Is this a start of a clampdown on status in the industry?
The problems surrounding labour-only subcontractors have been a matter for discussion between the industry and HMRC for many years so it is unlikely we will see anything major in the short term.
By Alastair Kendrick, a director of MHA MacIntyre Hudson. A longer version of his article can be read here
