Government plans to crack down on false self-employment could increase the practice, recruiters warn

RA Now

Proposed legislation to close a tax loophole that enables false self-employment could increase the extent of the practice, cause unquantifiable risk to the staffing sector and jeopardise UK employment and growth, parties across the recruitment sector have warned.

Despite welcoming the move to eliminate false-self employment, the recruitment sector as a whole appears to agree on the concern that the legislation has been drafted too widely and is being rushed through, with the risk of unintended consequences to the professional staffing sector.

The consultation – Offshore Employment Intermediaries: False Self-Employment, which closed last week – proposes to change the Finance Bill so that where a worker is subject to control, supervision or direction over the way their duties are carried out, provides their services personally, is remunerated as a consequence of providing their services and receives remuneration not already taxed as employment income, they will be deemed to be employed and the employing agency will be liable for tax and NICs.

However, that there will be no liability for the end-user under the proposals leaves  “significant scope for avoidance and sets this piece of legislation up to fail,” according to Ben Farber, senior policy advisor at the REC.

“False self-employment is a whole supply chain issue and any legislation to address the problem must address that,” he added.

Farber said that during its consultation process with REC members across a range of sectors, recruiters had identified mass avoidance as a large concern. With no end-user liability or reporting requirement there is nothing to stop clients from engaging with rogue traders at the expense of compliant agencies.

“Those rogue traders are unlikely to submit to the new reporting requirements and HMRC has admitted there is little they will be able to do in the way of enforcement in such circumstances,” the REC said.

There is also a real risk that such avoidance tactics will force lower-skilled workers away from decent agencies and into the informal “cash-in-hand” economy, where they could fall victim to exploitation, the REC added.

The Employment Lawyers Association said that the current proposals will result in the tax status of individuals being different depending on whether they engage directly with clients or via an intermediary, which is the complete opposite of what HMRC is trying to achieve.

The new test to govern when an agency is liable to operate PAYE for individuals performing or providing a service makes the position much more uncertain, the ELA added. Many different parties in a long contractual chain from clients to employment businesses could be involved in exercising authority.

“This is because each intermediary is legally the client for the provision of services to it, as well as the provider of services to its own client,” said James Warren, chair of the ELA committee that has examined the proposals. “As it stands, it seems any and all of the employment businesses in the chain could potentially be liable.”

A risk of liability for the recruitment agency is one of APSCo’s main concerns and the association is calling on HMRC to consider including in the final legislation statutory guidance on the compliance actions a recruitment firm should take, and a statutory defence in the event that they undertake such compliance checks.

“APSCo is very concerned that the proposed legislation has been drafted very widely and that the staffing industry is being asked to take on an unreasonable level of risk without any way of mitigating this,” said Samantha Hurley, head of external affairs.

“We will continue to engage with HMRC regarding our concerns and update our members accordingly,” she added.

The government is currently reviewing the responses to the consultation.