Earlier this year HMRC published detailed guidance on the (then) upcoming changes in the tax treatment of workers supplied through UK agencies, employment businesses, or other intermediaries.
These new rules, which came into effect on 6 April 2014, were brought about due to changes made in Finance Bill 2014, and they only affect workers who have in the past been provided to their end clients via a third party on a self-employed basis.
The New Rules for Workers Supplied via UK Agencies
Taken directly from their publication, HMRC noted that these new changes only apply where:
- a worker personally provides their services — this prevents the use of a standard substitution clause to avoid the Agency legislation,
- there is a contract between an end client (or someone connected with them) and any third party (ie, the agency), and
- as a result of that contract the services of the worker are provided, or the client pays for the services to be provided.
They were quick to note that these new rules aren’t applicable if the worker is not subject to supervision, direction, or control by any person, or any payment the worker receives for providing said services is already seen as employment income and thus taxed appropriately.
For this reason, agencies, employment businesses, and other intermediaries must now decide whether their workers are subject to supervision, direction, or control by any person (including the end client), as if they are they’ll now have to be treated for income tax and National Insurance Contributions (NICs), with the worker’s pay being subject to PAYE and Class 1 NICs.
If a worker supplied by a UK based agency, employment business, or other intermediary was previously classed and taxed as self employed under the old rules, with this new tax treatment now making them subject to PAYE and Class 1 NICs, they’ll need to complete a self assessment return for the last year they received income from self employment.
Defining Supervision, Direction, and Control
In their publication HMRC provide what they admit are broad definitions of what supervision, direction, and control refer to in terms of these new rules. These have been summarised below:
- Supervision: Somebody is overseeing a worker as they perform their work tasks to ensure said work is being completed correctly and to a satisfactory standard.
- Direction: Somebody is providing a worker with specific instructions, guidance, or advice to ensure their work tasks are being performed in a certain way.
- Control: Somebody tells a worker exactly what work needs to be done and how (exactly) they must go about doing said work. They also have the power to move the worker between jobs.
Impact on IR35
The intermediaries legislation, better known as IR35, needs to be considered in the same way it’s always been considered, regardless of the fact that a worker is being supplied through a third party. For a detailed take on how the new rules interact with IR35, HMRC have dedicated a section in their publication to this issue.
Experienced Tax Advisers
To speak with a professional to discuss these new changes to the tax treatment of third party workers, or for any other reason, contact us today on 020 7129 1199 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.