Taxman is rightfully onto a wheeze to avoid his latest laws

It’s already been credited with delaying the publication of minutes from the two latest IR35 Forum meetings, but the raft of new tax laws is also behind the newest avoidance trick in the contractor marketplace, writes Lisa Keeble, founder of ContractorUmbrella.

Temporary workers need to be aware of this wheeze because not only could it be detrimental to their rates and rights, it could also land their provider in hot water with the enforcer of those April tax laws – HM Revenue & Customs.

Seemingly undeterred by the record haul that the department is sitting on, providers in the temporary work market have effectively said of the new legislation, ‘there must be a way round it.’ Cue the providers’ idea of setting up Personal Service Companies (PSCs) for individual contractors, but then running them under an umbrella company.

On first sight, you might think that such a set-up contravenes the Managed Service Companies legislation. But in fact it doesn’t, because the contractors’ earnings, minus the provider’s margin, are all processed through PAYE. Attracting such a liability might not seem worth it. Yet the point is that the scheme provider is attempting to bypass ALL employment legislation by stating that the contractors are self-employed.

If you’re a temporary worker approached by such an arrangement, then be very cautious. You will get absolutely no benefit whatsoever as you’d lose all entitlements to any of the Statutory payments (e.g. sick pay or maternity pay), which you would get via a conventional umbrella company. There are lots of benefits to the scheme provider however, because with such a set-up they have virtually no responsibilities.

To make matters worse, at least from the worker’s perspective, the model allows the minimum wage laws to be flouted as they only apply to employed workers. The result? Unscrupulous companies can pay as little as they like to the contractors while, at the same time, depriving them of any legal rights.

The providers are keen to emphasise to both candidates and recruiters alike that the model looks perfectly safe – they are UK based; process earnings through PAYE and don’t ask for the workers to register as sole traders.  

Unfortunately for the providers, we understand that sources at HMRC have indicated severe concerns with what is being touted as a legitimate business model, but which the department will invariably regard as an avoidance mechanism. It is therefore likely that providers of these schemes are going to find themselves under the spotlight sooner rather than later.

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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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