Osborne in £400m attack on disguised employment
George Osborne used today’s Autumn Statement to launch a £400m crackdown on companies using intermediaries who 'dress up' the employed as self-employed to avoid tax.
The chancellor said an existing, unspecified piece of legislation would be changed so that HM Revenue & Customs can stop the avoidance of both employer and employee NIC.
The change, which defies calls to leave legislation targeting disguised employment untouched, will hit employment intermediaries whose “contrived contracts” make out workers they engage are self-employed.
The Treasury said: “The government is acting now to level the playing field so that companies cannot use employment intermediaries to disguise employment as self-employment and thus avoid employment taxes and deny employment rights to their workforce.”
The intermediaries in the crosshairs are on-shore; often used by high paid workers - not just the low paid - and appear to be prevalent in the construction industry, according to status expert Kate Cottrell.
“This is a new [attack on] a self-employed model where an intermediary steps in between the client and the worker,” she said. “Sometimes agencies are involved but often they are not.
“About 400,000 people in the construction sector are falsely self-employed…[often because] the scheme promoter persuades the client to take their workers off PAYE and move them over claiming there are no risks.”
To head of this “facilitating” off false self-employment, existing rules will be “strengthened” so the correct tax and NICs are paid where the worker is employed, from April 2014.
Reflecting on this wording from the government, a law firm said it suggested that “minor tinkering” to a current framework was intended, the detail of which is due on Dec 10.
Roger Sinclair, legal consultant at Egos added: “It will be interesting to see what exactly is planned, [but the wording] suggests that genuine self-employment is not to be challenged.”
The Treasury is in line, saying fake self-employment is the target: “The tax system should continue to recognise the additional risk someone who is genuinely self-employed takes on.”
The PCG welcomed the recognition - saying that while officials are right to tackle fake self-employment, “legitimate” self-employment must be left outside of the measure’s scope.
“Any measures designed to tackle false self-employment [have to be] targeted appropriately and selectively,” the group said, so they “do not affect genuinely self-employed people.”
However, the state’s decision not to specify which rule it will strengthen to tackle disguised employment via an intermediary so it can net £400m has got an accountant fearing the worst.
“What we may see here is changes to the IR35 legislation,” said Emily Coltman, chief accountant at FreeAgent. “[Any] changes to IR35 could result in more contractor companies having extra tax and NI to pay.”
Yet a legal advisor to umbrella companies is concerned that, unfortunately, it is his clients that will likely be targeted by the clampdown, specified at 1.306 of the Autumn Statement.
“This announcement looks like it is intended to counter umbrella-style companies offering self-employed models…used in relation to the construction industry.
“With these models,” explained the advisor, “HMRC says there is an existing obligation for it to be satisfied month-by-month as to the self-employed status of the workers.”
Whether it is umbrellas or PSCs who are hit from next April, the rest of the Autumn Statement continues this attacking stance towards the self-employed marketplace.
Martin McKechnie, a director at The Low Tax Group is disappointed: “The language used by officialdom at 1.306 is so vague that it causes more queries than answers.
“It smacks of more political posturing that, in reality, will over complicate an already bloated tax system. The focus should be on simplifying the system to help contractors succeed.”
Instead of helping such self-employed individuals, the Autumn Statement promises a crackdown on partnerships, amid accusations that they too are disguising self-employment.
It also vows to stop offshore contractors who lease equipment to oil and gas operators from using associate companies in tax havens, in an attempt to minimise their UK tax bills.
In addition, contractors and others who used tax schemes (such as EBTs) that fail in another party’s litigation at court will face a “ground-breaking” requirement to pay tax “up front.”
An accompanying crackdown, also anticipated by CUK this morning, will target tax avoidance scheme promoters in the shape of steeper obligations to HMRC, publicity and sanctions.
Editor's Note: Further Reading -