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The British Government has published a consultation document which outlines plans to crack down on the use of employment intermediaries by employers to avoid paying tax by disguising the employment status of their workers.
According to the Government, contrived employment arrangements were originally a problem in the construction industry, but have now spread to other sectors such as driving, catering and security, and it says that there are cases where workers have been moved out of direct employment into an intermediary arrangement.
False arrangements are used by employers to avoid paying employer National Insurance contributions of 13.8 percent, administering Pay As You Earn income tax deductions, and paying other employment-related costs such as holiday pay, sick pay, redundancy pay or pension contributions
Further, employees are sometimes unaware of the intermediary arrangement, and there are cases where a fee to an agency that has been deducted at source has been mistaken for a tax payment. Such workers consequently do not register as self-employed and become liable for unexpected tax bills.
In particular, the Government believes that a test of self-employment is being misused by a contract clause which seemingly would allow a worker to send another person to do his or her work, but which in practice is never implemented.
The Government therefore proposes to change agency legislation so that someone who is engaged by or through an intermediary will be in the same position as someone who is engaged directly. This means that a worker will be regarded as employed for tax purposes if he or she is subject to (or to the right of) control, supervision or direction as to the manner in which work duties are carried out; if services are provided personally; if remuneration is a consequence of providing services; and if remuneration received is not taxed already as employment income.
An intermediary that wishes to argue that a worker is not under control, direction or supervision will be required to provide evidence of this.
The Government consultation asks whether the change would cause practical or commercial difficulties; whether it is believed that the proposed change will achieve the desired objectives; whether there would be issues due to interaction with current relevant legislation (IR35); and whether it would be helpful to introduce a Targeted Anti-avoidance Rule to ensure the intention of the legislation is maintained.
The consultation will be run over a 9 week period, to allow for views on both the proposed policy and draft legislation. A number of roundtable events will be held during the same period to facilitate the gathering of views from external stakeholders.
Treasury Secretary David Gauke described the proposal as "the next step in creating a level playing field for all businesses and stopping unfair arrangements."
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