Draft legislation will be included in this year’s Finance Bill requiring employment agencies to pay income tax under PAYE and National Insurance contributions for workers where HMRC consider that they should actually be treated as employees.
The legislation will make changes to what are known as the “agency rules”. The changes will take effect on 6 April 2014.
These rules currently provide that amounts paid to workers by an agent where the agent provides the workers’ services to third party clients will be subject to deduction of income tax and National Insurance (NI) through PAYE and employers’ NI only if:
(a) the worker personally provides, or is under an obligation to personally provide, the services; and
(b) the worker is subject to (or to the right of) supervision, direction or control as to the manner in which the services are provided.
Until now it has been common for workers’ contracts to include a right to provide a substitute worker to provide the relevant services, so that it could not be said that there is an obligation to personally provide services. The effect is that the agency rules could not apply and the tax charges avoided.
The requirement for an obligation for a worker to personally provide services will be removed, so that the rules will apply simply if a worker personally provides services, or is personally involved in their provision. The rule set out at paragraph (b) above will still need to be met for the charges to arise, although the onus will now be on agencies to prove otherwise if they consider that the new rules should not apply.
Who are they aimed at?
Any person who acts as an intermediary or agent in supplying workers to third party clients (such as employment agencies).
What are the consequences?
Businesses will have to deduct income tax and NI contributions under PAYE from payments made to workers if the new rules apply to arrangements between those businesses and the workers. If the new rules apply, employer’s NI will also be payable on amounts paid, which will represent an additional cost for businesses.
What action should I take?
Businesses who think that they might be affected by the changes to the agency rules should review their arrangements with the workers they engage to confirm whether this is the case and to plan to avoid the economic impact of them to the extent possible.
DWF are happy to assist with any queries from businesses in relation to the new rules. Please get in touch with your local DWF contact to arrange this, or alternatively use our Get in Touch form.