In 2014, HMRC introduced new rules designed to remove so-called false self-employment for workers engaged via intermediaries. These rules centred on ”SDC” tests designed to establish whether a worker was, or was capable of, working under supervision, direction and control. Unless an engager could evidence that no SDC (or right to) existed, PAYE/NIC would need to be applied to the worker’s earnings as though they were employees
Not surprisingly, the number of self-employed contractors working through agencies – particularly in the construction sector – fell like a stone during 2014 as engagers and agencies moved workers to employed solutions such as umbrella companies.
HMRC then moved the goal posts again by changing the rules for tax relief on travel and subsistence expenses for workers engaged via intermediaries and made changes to the income tax and VAT rules for small companies so making these models less attractive. The new off-payroll rules in the public sector will also play a role going forward.
Engagers have also become more comfortable with how the SDC tests work and so we’ve seen the number of self-employed contractors working via intermediaries begin to rise steadily over the last 18 months.
Radio silence from HMRC in the last 3 years and the erosion of the benefits of working via other models have led to the risk of a perfect storm i.e. engagers operating under the false impression that everything is OK whilst HMRC gather the information to challenge badly run arrangements.
Various “nudge letters” have been issued by HMRC early in 2017 to approximately 1000 intermediaries who HMRC believe to be paying workers on a self-employed basis. These letters contain wording designed to warn engagers to ensure that they are operating the SDC rules correctly or correct the position immediately. If not, they are on HMRC’s radar and likely to be reviewed at some point in the future.
So, if you are paying self-employed workers via intermediaries are you sure that your processes live up to HMRC’s expectations? If not, the window to make improvements and protect the past is closing.
Sourced from Linkedin: Written by John Chaplin.