HMRC to spotlight personal service obligation

The right to substitution will be blocked as an automatic get-out of the Agencies legislation, under the taxman's plan to crackdown on intermediaries that disguise employment.

To be unveiled tomorrow, a minor change to Section 44-47 of ITEPA 2003 will be proposed by HMRC, so that the right to substitution can no longer put workers outside of the rules.

Confirming the scope of the move, a staffing body said HM Revenue & Customs has signalled that the change would be to the ‘personal service obligation’ in the leglislation.

The Recruitment & Employment Confederation added that the effect of the change will be that the sole status consideration will, in the future, be on “the reality of the relationship.”

“[In other words,] whether the worker in question is working under the direction, supervision and control of a client,” the REC explained. “This measure will be included in the draft Finance Bill”.

The crackdown on intermediaries – and employers using them – that disguise the employed as self-employed to avoid both employer and employee NIC, will net more than £2bn over five years.

It seems to stem from the Talentcore case in 2011 where, despite workers being supervised, directed and controlled, no employment taxes were owed mainly due to the right to substitution deeming the workers to be self-employed.

The REC said: “Whilst we support the...[move in] principle, we are wary of the rhetoric that might tar legitimate contractors with the same brush.”

The Freelancer and Contractor Services Association agreed: "Schemes which falsely treat low paid temps as self employed workers, take away their employment rights and pocket savings in national insurance, should be addressed.

"[However] it is critical that the legislation needs to be drafted carefully so it doesn't cause unintended damage to other 'non vulnerable' workers in the flexible workforce."

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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