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page - This page is primarily relevant to Umbrellas & Management Companies,
and Agencies
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This legislation took effect from 6th
April 2014.
At high level, it should be considered to
constitute a death knell for
-
intermediaries (including agencies and umbrellas)
providing services of the
self-employed (including under CIS)
-
the use of offshore companies in a contract chain
whereby services are provided in UK
save only (in either case) where either one
of the following applies:
1
the client is prepared to give assurance that the
manner
in which the worker is providing the services will not be ‘subject to (or to the right of)
supervision,
direction or control by any
person’; or
2
the services to be provided are ;excluded
services’ (as to which, see section 47(2)).
To those familiar with the previous legislation,
the basic changes to this part – ‘chapter’ – of the act, as I understand them,
are:
1
a right of substitution alone no longer avoids
the provisions of section 44
2
contracting with a company to engage an
individual’s services no longer automatically shifts compliance
responsibilities to that company
3
the burden of proof is reversed – no longer do
HMRC have to prove that the individual is subject to control as to the
manner of his/her working, now it is for the agency to show that the individual
is
not subject to such control – effectively, there is a displaceable
presumption of such control.
Now,
1
The primary liability for compliance (ie making
payments under PAYE) falls on the party (usually an agency) directly
contracting with the end client.
2
If it can be shown that the
manner in which the worker is providing the services will not be ‘subject to (or to the right of)
supervision,
direction or control by any person’, the provisions of section 44 will not apply
–
but if the client
provides a fraudulent document intended to constitute evidence of this, then
liability and compliance risks shift to the client
– note that any such assurances by
the worker (or inded by anyone other than the
client) will only ‘work’ to shift liability and compliance risks away from the
agency, if they can be shown to be true – therefore
an agency may be unwise to regard collecting such assurances from anyone other
than the client as sufficient to displace the agency’s own liability and
compliance risks.
3
If all remuneration receivable by the worker in
consequence of providing the services in fact constitutes employment
income (as a result of provisions other than section 44), the provisions of section 44 will not apply - eg:
– if the
worker (using an umbrella company) only receives salary and reimbursed
expenses, or
– if a worker
(using his own or a ‘family’ company) only receives salary, reimbursed
expenses, and dividends (see below).
4
if a UK-based
person contracting with the agency (such as a company contracting to
provide the worker’s services) assures the agency that any remuneration
receivable by the worker for the services will
be taxed as employment income, the provisions of section 44 will not apply
–
but if a fraudulent
document intended to constitute evidence of this is provided by such person,
then liability and risks shift to that person
– and note that such assurances from a non-UK-based
person (such as an offshore company) will not operate to displace liability
and risks from the agency at all – in such a situation, the agency will only be
off the hook if all
remuneration receivable by the worker in consequence of providing the services in
fact constitutes employment income.
It should noted that in
the case of worker using his own company and operating a salary/dividend split,
dividends are normally accepted as not constituting ‘remuneration receivable by the worker
for the services’ (on the basis that dividends are a return for investment in
the company, not remuneration for services) – and therefore section 44 does not prevent or interfere with:
-
a worker
using his own or a ‘family’ company continuing to operate a salary/dividend
split (subject of course to IR35); or
-
such a company (operating a salary/dividend
split) properly giving an assurance to an agency that any remuneration receivable by the
worker for the services will be taxed as employment income.
The amended sections of primary relevance to the
questions of whether the rules apply are, in their amended form, below.
There are also requirements relating to record
keeping and periodic returns; and
allowing (in certain circumstances) for liability for unpaid PAYE due under
this chapter to be passed personally to directors of defaulting companies; I have not shown these provisions here.
44 Treatment
of workers supplied by agencies
(1) This section applies if—
.
(a) an
individual (“the worker”) personally provides services (which are not excluded
services) to another person (“the
client”),
.
(b)
there is a contract between—
.
(i) the
client or a person connected with the client, and
.
(ii) a person
other than the worker, the client or a person
connected
with the client (“the agency”), and
.
(c)
under or in consequence of that contract—
.
(i) the
services are provided, or
.
(ii) the
client or any person connected with the client pays, or otherwise provides
consideration, for the services.
(2) But this section does not apply if—
(a) it
is shown that the manner in which the worker provides the
services is
not subject to (or to the right of) supervision,
direction or
control by any person, or
(b) remuneration
receivable by the worker in consequence of providing the services constitutes
employment income of the
worker apart
from this Chapter.
(3) If this section applies—
.
(a) the
worker is to be treated for income tax purposes as holding
an employment
with the agency, the duties of which consist of
the services
the worker provides to the client, and
.
(b) all
remuneration receivable by the worker (from any person) in consequence of
providing the services is to be treated for
income tax
purposes as earnings from that employment,
but this is subject to subsections (4)
to (6).
.
.
(4) Subsection
(5) applies if (whether before or after the worker begins to provide the
services)—
.
(a) the
client provides the agency with a fraudulent document
which is
intended to constitute evidence that, by virtue of subsection (2)(a), this
section does not or will not apply, or
.
(b) a
relevant person provides the agency with a fraudulent document which is
intended to constitute evidence that, by virtue of subsection (2)(b), this
section does not or will not apply.
.
.
(5) In
relation to services the worker provides to the client after the fraudulent
document is provided—
.
(a)
subsection (3) does not apply,
.
(b) the
worker is to be treated for income tax purposes as holding
an employment
with the client or (as the case may be) with the
relevant
person, the duties of which consist of the services, and
.
(c) all
remuneration receivable by the worker (from any person) in consequence of
providing the services is to be treated for
income tax
purposes as earnings from that employment.
.
.
(6) In
subsections (4) and (5) “relevant person” means a person, other than
the client,
the worker or a person connected with the client or with the agency, who—
.
(a) is
resident, or has a place of business, in the United Kingdom, and
.
(b) is
party to a contract with the agency or a person connected with
the agency,
under or in consequence of which—
(i)
the services
are provided, or
(ii)
the agency,
or a person connected with the agency, makes payments in respect of the
services.”
45 Arrangements with
agencies
If—
(a)an individual (“the worker”),
with a view to personally providing services (which are not excluded services)
to another person (“the client”), enters into arrangements with a third person,
and
(b)the arrangements are such that
the services (if and when they are provided) will be treated for income tax
purposes under section 44 as duties of an employment held by the worker,
any remuneration receivable under or in consequence of the
arrangements is to be treated for income tax purposes as earnings from that
employment.
46 Cases involving
unincorporated bodies etc.
(1)Section 44 also applies—
(a)if the worker personally
provides the services in question as a partner in a firm or a member of an
unincorporated body;
(b)if the agency in question is an
unincorporated body of which the worker is a member.
(2)In a case within subsection (1)(a), remuneration receivable in
consequence of the worker providing the services is to be treated for income
tax purposes as income of the worker and not as income of the firm or body.
(1) This
section applies if—
(a) an individual (“W”) personally
provides services (which are not
excluded services) to another person
(“C”),
(b) a third person (“A”) enters into
arrangements the main purpose,
or one of the main purposes, of which is
to secure that the services are not treated for income tax purposes under
section 44 as duties of an employment held by W with A, and
(c) but for
this section, section 44 would not apply in relation to the services.
(2) In subsection (1)(b)
“arrangements” includes any scheme, transaction or
series of transactions, agreement or
understanding, whether or not
legally enforceable, and any associated
operations.
(3) Subject to subsection (2) of
section 44, that section applies in relation to the services.
(4) For the purposes of subsection
(3)—
(a) W is to be treated as being the
worker,
(b) C is to be treated as being the
client,
(c) A is to be treated as being the
agency, and
(d) section
44 has effect as if subsections (4) to (6) of that section were omitted.”
47 Interpretation of
this Chapter
(2)In this Chapter “excluded
services” means—
(a)services as an actor, singer,
musician or other entertainer or as a fashion, photographic or artist’s model,
or
(b)services provided wholly—
(i)in the worker’s own home, or
(ii)at other premises which are neither
controlled or managed by the client nor prescribed by the nature of the
services.
(3)For the purposes of this Chapter
“remuneration”—
(a)does not include anything that
would not have constituted employment income of the worker if it had been receivable
in connection with an employment apart from this Chapter, but
(b)subject to paragraph (a), includes every form of payment,
gratuity, profit and benefit.
(1) This section
applies if the remuneration receivable by an individual in consequence of
providing services falls to be treated under section 44 (agency workers) as
earnings from an employment.
(1A) The relevant provisions have
effect as if the individual held the employment with or under the deemed
employer, subject to subsection (2).
(1B) For the purposes of sections
687, 689 and 689A, if—
(a) a person other than the deemed
employer or an intermediary of
the deemed employer makes a payment of,
or on account of,
PAYE income of the individual, and
(b) the payment is not within
subsection (2),
the person is to be treated as making
the payment as an intermediary of
the deemed employer.
(2)If—
(a) the client is not the deemed employer, and
(b)a payment of, or on account of, PAYE income
of the individual is made by a person acting on behalf of the client, and at
the expense of the client or a person connected with the client,
section 687 and, in relation to any payment
treated as made by the client under section 687, section 710 have effect in
relation to the payment as if the client and not the deemed employer were the
employer for the purposes of the relevant provisions.
(3)In this
section
“the client” means the person who is the
client for the purposes of section 44;
“the deemed employer” means the person
with whom the individual is treated under section 44 as having an employment,
the duties of which consist of the services;
“the
relevant provisions” means this Chapter except section 691, Chapter 4 of
this Part and section 710.
The amendments made by this
section are treated as having come into force on 6 April 2014.
This is the False Employment
page - This page is primarily relevant to Umbrellas & Management Companies,
and Agencies
Links to: Index - Welcome / What We Do - Contact Details & Availability - Contact us – Terms of Business
This
page was last updated 5th January 2021.
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