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Temporary workers & employment agencies to pay more

In this edition of Baker Tilly’s weekly round-up of the most important tax news, we look at this month’s Draft Finance Bill and find out who the real winners and losers were…

One of the biggest changes for employers is the news that workers supplied through intermediaries are being targeted, which will raise a significant amount in additional and NICs.

Temporary workers make up around 5% of the workforce, with the businesses supplying them sometimes employing them directly, using agency contracts, and sometimes using sub-contractors.

The tax, NIC and employment law position is different in each case, so end-users have been going for the cheapest options, which often involve reduced tax costs (and less employment red tape).

In the Finance Bill, the government has announced it is taking action against those temps who are sub-contractors. The PAYE and NIC rules for temps currently don’t apply if the worker is not obliged to provide personal service, accepting that a self-employed worker finding work through an agency is still self-employed and should be taxed as such. But that will change from 6 April 2014.

From then, if the worker personally carries out the work, or is involved in the provision of the services, the payment will have to be payrolled, so the worker will have tax and employee NICs (at 12%) deducted at source, and the agency will become liable for employer NICs (at 13.8%).

The worker’s own NIC cost is therefore 3% higher than the 9% paid as a self-employed person, and the ‘employer’ agency has a completely new liability. With some agencies, workers are free to send somebody else along to do the contracted work, which has the effect of taking the payments out of the scope of PAYE and NIC rules. This freedom will, in future, not prevent the operation of PAYE and NIC at the employed rates.

The government estimates that 200,000 construction workers and 50,000 other self-employed people will come into PAYE, raising the tax and NIC take by around £520m next year. It will be interesting to see how the hard-pressed construction businesses react to the extra costs.

But imposing PAYE on subcontractors who are self-employed is not the end of the story. Some employment intermediaries have also been operating from outside the UK to avoid UK employer NICs, and they are to pay around £80m more.

In the oil & gas sector, employment of North Sea rig workers by a non-UK entity has (legitimately) been the norm for many years, and those employers with no UK place of business (like employers in other trades) have not been subject to employer NIC liabilities. That too is to change, with a new liability imposed on the last intermediary before the supply to a UK entity.

In other business sectors, there have been some offshore employers and UK end users who consider that the existing rules don’t apply. The new rules will ensure that PAYE and NIC is deducted either by an intermediary or end user in the UK. In other sectors, there have been some offshore employers deliberately flouting the existing rules that impose a UK NIC liability on the UK end-user.

The new rules intend to make it easier to impose the missing liability on a business in the UK.

This was posted in Bdaily's Members' News section by Baker Tilly .