The title of this article relates to a subject matter that has received considerable publicity over recent months and years.However, it’s also clear that significant numbers of people don’t really understand just what the issue is relating to onshore employment intermediaries: false self-employment.So, here is a quick attempt to summarise the position and to outline why it has become a matter of national debate in government and HMRC circles.
The basic issue
Since income tax and national insurance (NI) contributions were first introduced, people have attempted to find ways around paying them.In some cases the methods were unimaginative tax evasion though things such as false declarations and in others via more subtle methods, such as trying to find loopholes in prevailing legislation.Before adopting the moral high ground and disapproving too much, it is worth keeping in mind that to this day both individuals and organisations typically spend a considerable amount of time trying to make sure that they aren’t paying one penny more in tax and NI than they are legally obliged to. It’s a natural instinct for many perfectly respectable, socially responsible and right-minded people.As a result, there is a long history of intellectual and legal battles between individuals, companies and HMRC, in terms of the interpretation of taxation law.One of the most recent manifestations of this conflict relates to what are termed onshore employment intermediaries – and it has proven to be a fairly thorny issue to resolve for HMRC over some considerable time.
Taxation law and NI contributions may vary depending upon a number of circumstances, with one of the more significant being whether you are working as (or employing) an employee or individual.Various forms of legislation define, albeit rather imprecisely, what makes someone an employee versus one of the self-employed. Unfortunately, at least from an HMRC perspective, these definitions are notoriously difficult to specify and as a result, some unscrupulous (or depending upon which side of the debate you sit on, enterprising) organisations have looked to exploit the position.The approach of these companies is essentially to act as intermediaries between someone performing work, notionally described as being self-employed and the person paying for their services.
What this means is that significant numbers of people have been persuaded to effectively leave the domain of conventional employment and move into that of self-employment.In theory, this shouldn’t be a problem for anyone including HMRC but they are raising three fundamental objections to this practice in certain circumstances:
- in some cases, by any reasonable definition the individuals concerned are de-facto employees;
- as a result, there is a loss of taxation and NI revenue;
- in certain situations, employees are being persuaded to change their status to operating through onshore employment intermediaries without realising the full implications or even that they’re now self-employed. As a result, some are losing certain aspects of the protection offered by law to employees but not to the self-employed.
As HMRC aren’t usually known to be particularly prominent in speaking out for employees’ rights, some cynics are dismissing the third point and suggesting that this is all about the government’s increased focus on obtaining all due revenues as part of debt reduction programmes.
The steps being taken
The Chancellor has proposed new legislation aimed at cracking down on abuses in the onshore employment intermediaries’ domain.Space doesn’t permit a full discussion of the legislation but essentially it revolves around the principles of identifying when someone working is, in effect, under the control, direction and supervision of the person they are performing the work for. This will be used to categorise them as employees not self-employed.It’s really a tightening up of definitions and subsequent enforcement.Many commentators are broadly supportive of any attempt to crack down on devious attempts to avoid taxation and NI contributions. Nevertheless, there are some worries that these revised and more all-embracing definitions could be interpreted as applying to many people legitimately working as self-employed.Further developments will be watched with interest.