As the new onshore intermediaries legislation comes into action, our Legal Assistant Chloe Stevenson explains how it works and who it affects.
Onshore intermediaries legislation came into force on 6th April, with the central objective of strengthening existing legislation in order to combat the increasing problem of false self employment, facilitated by the use of employment intermediaries.
The new legislation has adapted existing legislation primarily by replacing the obligation for personal service with a focus on supervision, direction and control over how work is completed.
How does it differ from IR35 legislation?
There is no conflict between onshore intermediaries legislation and IR35; contractors caught by IR35 will not be in scope of the false employment rules as they are already paying income tax and NIC on their income.
Who does it apply to?
Workers who fall within the scope of this legislation are those who personally provide services to a client, where the client has a contract with an intermediary such as a recruitment agency, and where the manner in which the worker provides those services is subject to supervision, direction or control by any person.
Those who are outside of scope are under a standard PAYE, or employees working via PAYE umbrella. For those working through their own limited company, where PAYE income is paid or dividend income is paid, you will also be outside of scope.
Finally, if you are genuinely self-employed will remain outside of scope, as HMRC stresses that they will continue to recognise the additional risk that self-employed individuals take on.
In order to fall outside of scope the onus falls on the recruitment agency to prove that the individual is not under the control, direction or supervision of the client as to the manner in which they will provide their services.
The recruitment agency is also responsible for making quarterly submissions to HMRC detailing everyone working for them who is not on their PAYE payroll. HMRC are then able to cross check your tax records against the agency’s submissions, to determine that the correct level of tax is being paid.
Personal Service Companies will not be affected by this legislation; however there is legislation in place to prevent agencies pushing workers into PSCs to avoid the effects of the new onshore intermediaries legislation.
If you work through an intermediary and currently do not pay PAYE and NIC on your income your agency will need to consider your status under this legislation. Essentially, the agency will determine whether or not you are deemed to be under direction, control or supervision of the client and are liable to pay PAYE and NIC contributions.
Be aware that where a worker is engaged through an intermediary, there will be a presumption that there is control over the worker. Expect these changes to come into place quickly; the first set of information is to be submitted to the HMRC by August 5th 2015.