There will be a new test to govern when an “agency” is liable to operate PAYE for individuals performing or providing a service, and it will apply to any company involved in supplying services through individuals who are not their own employees. Effectively, if such individuals are subject to anyone's “supervision, direction or control” the company responsible for supplying them will also be responsible for deducting tax and NI.
The plans create a number of uncertainties and complexities:
- Many different parties in a long contractual chain between clients and different employment businesses could be involved in exercising direction, supervision or control. Potentially, any of the employment businesses in the chain could be caught by the new test.
- The tax position for individuals may be completely different depending simply on whether they engage directly with clients or via an intermediary.
- Given their wide scope, all sorts of business to business relationships may be caught by the new tests, not just those involving employment agencies and employment businesses.
- The proposals suggest that many individuals who were formerly treated as self-employed will now be regarded as employees for tax purposes. However, this will not mean that they receive basic employment rights such as the right to claim unfair dismissal or redundancy compensation. Individuals may end up with the burden of PAYE and NI deductions with no corresponding benefit in the form of employment law protections.
The government consultation on its plans has just closed, and we now await its formal response to the comments it has received (including from James Warren who chaired and Angharad Schell who contributed to the Employment Lawyers Association submission). The government has been urged to redraft the legislation to eliminate the uncertainties and focus on addressing the problem of false self-employment effectively, without undermining legitimate business relationships. We will keep you informed, but please contact James or Angharad if you have any immediate concerns or queries.