The Government has turned its attention to false self-employment as part of its overall policy of curbing tax avoidance in the UK.
HMRC says that there is growing evidence that some companies are using employment intermediaries (ie a recruitment business or an umbrella company) to disguise the employment status of their workers by falsely labelling them as self-employed.
HMRC argues that in many cases employees are being taken out of permanent employment and moved into false self-employment. HMRC believes that false self-employment is particularly prevalent in the construction, driving, catering and security sectors. HMRC believes that this is primarily being done to avoid employer National Insurance Contributions and to avoid the other costs associated with employment.
Some of the key features of the new law are as follows:
- The amendment of the definition of ‘intermediary’ to ensure that those buying composite supplies with a number of companies in a supply chain are not caught by the legislation by mistake whilst ensuring that actual avoidance is caught.
- The change of the test of whether the relationship is an employment relationship for tax purposes to what is now fundamentally a ‘control’ test. This is aimed at reducing the effectiveness at avoiding employment status of contractual clauses which allow the worker to send a substitute to do the work.
- Shifting the burden of proof that the worker is not under control, direction or supervision to the tax payer.
- Where a worker who is found: to be subject to ‘control, direction and supervision’ providing their services personally; is remunerated for providing such services; the remuneration is not being taxed as employment income; and the worker is engaged through an intermediary, then they will be deemed to be employed by the intermediary for tax purposes.
- There will also be a targeted anti-avoidance rule (TAAR) to ensure that no new avoidance vehicles are deployed after the crack-down on the current practice of false self-employment. The TAAR will enable HMRC to scrutinise a company’s motives for setting up such an arrangement and the effect of the arrangement on the company’s tax liabilities.
There will be further record keeping, returns and penalty provisions contained in regulations that are expected to come into effect from 6 April 2015.
None of this substantially affects the question of whether a worker has the statutory employment rights of an employee, but the changes should prompt employers to review the types of working relationships they operate with their workers.