Partner Article

Temps to pay more tax

Most, but crucially not all, agency workers are taxed through PAYE, and from April, the rest are to join the ranks of the payrolled, attracting employed NI rather than paying the lower self-employed NI.

‘Temps’ aren’t generally given an employment contract (unless working for a so-called ‘umbrella’ company), but there are special tax and NIC rules that tell the agency to collect tax and NIC through payroll as if they were employees (just like employees of ‘umbrellas’, in fact). They’re technically self-employed because they don’t fit the definition of ‘employee’.

HMRC has decided this technicality is a loophole, which will close from 6 April. The rules currently only apply if the temp works under an ‘agency contract’, does the work personally, and subject to a right of supervision as to how the work is done. Some such workers are skilled professionals who need no supervision and will happily arrange for a substitute to carry out their work if they can’t fulfil their contract - so aren’t subject to payroll deductions.

HMRC has seen lots of agencies exploiting the definition to ensure temps aren’t classed as employees by ensuring their contract doesn’t require personal service. Some businesses even transfer their workers to an agency using this structure so they don’t have to pay NIC on wages – the real loophole that should be targeted. Employment costs are lower, but workers generally lose employment rights too.

The tax door (but not employment rights door) will close on these arrangements from 6 April. HMRC calls the practice ‘false self-employment’, but that’s clearly a misnomer making it sound as if workers are somehow cheating. Legally, workers who genuinely don’t need to provide personal service cannot be employees – they’re self-employed and taxed as such. The income is taxable, but no PAYE is legally deductible.

If agencies and workers only pretend to send a friend to do work, that’s evasion not avoidance. This could be dealt with under existing law if HMRC had resources to do it. But making it appear as if all temps are doing the same nefarious thing, HMRC is justifying dragging all genuinely self-employed service providers who work through agencies into the PAYE and NIC net. That was never the intention with the old agency rules. The sweep of evasion and avoidance schemes is set to catch a lot of innocent temps - and a surprising number of other workers who shouldn’t be caught - from April.

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