Recruiters and contractors warned on ‘false self-employment’ rules

Jo Faragher

New payroll schemes for contractors offered by payroll intermediary companies could put businesses at risk of unexpected tax bills and fines, an accounting company has warned.

According to NoPalaver Group, which offers accounting services to contractors, using an intermediary may not guarantee that a contractor and their employer complying with the new Onshore Employment Intermediaries legislation.

The legislation was introduced by HMRC in April to tackle what it saw as the exploiting of self-employment for tax purposes when workers are not genuinely self-employed.

Many contractors who work through recruitment companies use umbrella companies or similar payroll intermediaries to receive payment for work, but under the new rules, any workers supplied through an intermediary will be treated as employed for tax purposes.

This could expose businesses to large bills for PAYE, National Insurance penalties or an investigation by HMRC, warns NoPalaver. It adds that some schemes promoted to construction companies require the business end user and its workers to sign letters or contracts declaring that self-employed contractors are not under “supervision, direction or control”.  The intermediary then continues to treat the worker as self-employed.

Graham Jenner, Director of NoPalaver Group, said: “The recent changes to the rules about self-employment are very radical but some of the schemes being marketed to construction businesses don’t reflect this.”

“Some payroll providers are exposing the businesses that use their services to a high risk of a large tax bill and fines because they are taking a business-as-usual approach or offering new solutions that are likely to fail if HMRC investigates them.”

He adds that businesses “should be very wary of signing a disclaimer like this because if HMRC investigates, the scheme is highly unlikely to offer the company the protection that it expects or that the intermediary promised”.