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

Contractor’s Question: Regarding the proposed legislation to crackdown on false self-employment, I’m concerned about the identity of the party who would be liable for tax purposes, assuming the draft regulations don’t change and take effect from April 2014.

Specifically, if there’s a recruitment company with an intermediary in the middle and the worker has a self-employment contract with the intermediary – not the recruiter – is it then the intermediary and not the recruitment company that would be liable?

Expert’s Answer: No. Normally in that situation, the end-user has a contract with the recruitment company, the recruiter then contracts with the intermediary which then pays the self-employed worker. 

As it is drafted at present, the legislation states that the party which has the contract with the end-user is the liable ‘agency,’ so that would be the recruitment business, and it would be liable for payment of Section 44-47 taxes under the PAYE scheme.

The question arises, though, how would that agency know how that individual worker is engaged by the intermediary, whether it’s  a PSC or otherwise?

There are of course other tax rules which may put the intermediary in the frame for paying employment income taxes, such as because HM Revenue & Customs might decide that the relationship between the so-called ‘self-employed’ worker and the intermediary is actually an employment relationship. But to answer your question directly, and in relation to the specific circumstances, it’s ultimately the recruitment company who would be liable for tax purposes.

The expert was Adrian Marlowe, managing director of Lawspeed, a recruitment law firm.

Friday 24th Jan 2014
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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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