False self-employment rules might be too wide, HMRC admits

HM Revenue & Customs has admitted that its proposals to tackle ‘false self-employment’ by onshore intermediaries might be drafted too widely.

The admission from a senior official at HMRC came last month at a seminar in London dedicated to the proposals, which are due to take effect from April.

The HMRC official said:“So what have we heard so far from our [industry] roundtables? Well, some have stated that our legislation is too wide. And you know what? You might be right.”  

The acknowledgement should placate The Chartered Institute of Taxation, The Association of Recruitment Consultancies and law firm Egos, as each of them say the proposals go too far.     

The CIOT stated: “We are concerned that HMRC’s proposal may overstep the mark and risk penalising genuinely self-employed workers, as it currently stands…very widely drawn.”

And ARC’s Adrian Marlowe, also of Lawspeed -- hosts of the seminar with HMRC -- said: “The legislation as currently drafted will have a much wider impact than the intended result.”

Similar alarm has been sounded by professional services giant KPMG, staffing body REC, and PCG, the freelance trade body.

PCG said this month: “[We] will be watching closely to ensure that, in their haste, the government don’t try to push something through that hasn’t been properly considered.”

Fortunately for the 21,000 contractors represented by the body, the HMRC official followed up his admission that the draft rules might be set “too wide” by saying, “we’re looking at it.”

As to the overreach, Mr Marlowe reflected: “We believe the proposed scope extends far too widely, as it appears to catch every supply or subcontractor arrangement with few exceptions.

“The only defence to a claim by HMRC would be that the worker was not subject to any ‘control’, a complex legal issue which many will find hard to judge and which require[s] a case-by-case analysis.”

The CIOT echoed: “As it currently stands the proposal is very widely drawn.

“It states that to fall outside of the new rules then it will be necessary to show that an individual is not ‘subject to, or the right of, supervision, direction or control as to the manner in which the duties are carried out by any person’. But proving a negative can be very difficult.”

As to the ‘exceptions’ mentioned by Mr Marlowe, he was likely referring to the typical limited company contractor, assuming that they use one of four payment methods, such as dividends.

These draft measures to tackle intermediaries who avoid tax by disguising the employed as self-employed do contain a potential “significant let-out” for most contractors who use limited companies, according to Lawspeed and as previously reported.

Ben Grover, senior legal consultant at Lawspeed explained to ContractorUK:“We are not convinced that dividends in themselves are not ‘employment income.'

“However, because the payment must be ‘in consequence of the services’ to qualify for this condition and dividends are not necessarily paid ‘in consequence…’, a dividend payment [therefore] will not normally meet the condition.”

Lawspeed today elaborates on this -- what it calls a “significant let-out” in the draft rules for PSCs --  which has been spelt out in guidance from HMRC in Employment Status Manual ESM 2076.

Of the seminar the firm hosted with the Revenue last month, Mr Marlowe said: “[HMRC’s] representatives listened carefully and explained the government’s position well.

“So I hope the areas of concern that were highlighted result in changes to the draft legislation in due course.”

Editor’s Note: Related Reading –

Contractors’ Questions: Who’d be liable for false self-employment?

Disproving 'false self-employment' remains an enigma

HMRC to amend false self-employment rules

EDM tries to avoid false self-employment rules, HMRC told

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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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