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HMRC cracking down on pseudo self-employment status

30/12/2013
Kim Klahn employment solicitor with lodders solicitors in stratford upon avon

Government moves to crack down on self-employment anomalies is set to have extensive implications for the jobs market, according to Kim Klahn, a solicitor with Stratford-upon-Avon based Lodders.

And she warned employers that it could ramp up their payroll bill.

Kim, who heads up Lodders’ new employment service Empline, aiming to provide business owners and HR professionals with legal peace of mind for a fixed annual fee, was commenting on an official consultation on the proposals which runs until February 4.

The Treasury has become concerned about the growth of intermediary companies through which an individual can claim self-employed status.

The end-user business does not have to pay 13.8 per cent employer NICs; does not have to administer PAYE; and avoids other costs such as holiday pay, sick pay, redundancy pay or pension contributions.

The worker benefits from being self-employed by paying a slightly lower level of NICs and being able to claim more generous tax and NICs free expenses.

But the person loses out on employment law rights such as redundancy pay, and National Minimum Wage protection.

Around 200,000 workers in construction, and 50,000 in other sectors, are reckoned to be engaged with and through onshore employment intermediaries.

Were nothing done, the cost to the Exchequer is expected to be £520 million by 2014/15.

The consultation follows an announcement in the Autumn Statement. Changes are intended to come into force in April via a proposed re-defining of the ‘personal service’ definition. Under the new test, if the worker personally provides, or is personally involved in the provision of, services to another, and if he or she is subject to supervision, direction or control as to the manner in which he or she carries out his or her duties, then the payment for his or her services will be taxed as employment income.

Income tax and National Insurance contributions would consequently follow.

Kim said: “The intention is to make it very much harder for employment agencies and personal service companies to act as intermediaries to facilitate false self-employment.

“The Government has made it very clear that it considers these practices are not right, by engaging in them some businesses are gaining an unfair advantage over competitors, and intends to ensure that where someone should be an employee but contrived arrangements are put in place to hide this, the right amount of tax and National Insurance is paid.

“Worse, workers are sometimes unaware that they are self-employed and losing out on both employment rights and statutory payments. Equally, there are cases where workers are aware of these arrangements, but have little choice but to accept them or lose the job.”

Workers, she pointed out, were often obliged to pay a fee to the employment intermediary, as much as £25 per week.

Kim said: “This consultation document sets out the Government’s plans to level the playing field so that businesses that are playing by the rules cannot be undercut by those avoiding their obligations.

“By making a simple change to the agency legislation the Government intends that it will put someone who is engaged by or through an intermediary in the same position as someone who is engaged directly. A simple change but massive implications. Employers need to review their position.”

The Government has said the shake-up will not affect those who are genuinely self-employed.

For more information please contact Kim Klahn on 01789 206154 or by email.

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