Intermediary organisations

HMRC seeks to stop workers using ‘intermediary vehicles’ to claim self-employed status when they might otherwise be employees of the organisation receiving their services.

Under the Onshore Employment Intermediaries legislation workers who are supplied to a client organisation through an agency, payroll or umbrella companies are to be treated as employees by the intermediary who must deduct PAYE and NICs and who are also liable for employer’s NICs. The government has stated that the new legislation does not affect:

1  normal agency workers who are already subject to PAYE and NIC deductions

2  contractors with their own companies who are genuinely self-employed

3  workers who provide their services wholly in their own home or on premises that are not controlled or managed by the end client workers who provide their services as actors, musicians or other entertainers or as photographers’ or artists’ models.

The new regulations therefore affect workers who are based on the client’s site and for whom someone is considered to have the right to supervise, direct or control their work – even if that right hasn’t been exercised.

The client organisation should ensure, through its contract and indemnities with the service company, that it is doing this. More information can be found at www.gov.uk/ir35-find-out-if-it-applies

Construction industry

Special rules apply within the construction industry when it comes to subcontractors and tax status. The Construction Industry Scheme sets out rules and procedures for payments to subcontractors for construction work. All payments from contractors to subcontractors must take account of the subcontractor’s tax status as determined by HMRC. This may require the contractor to make a deduction, which it then pays HMRC, from that part of the payment which does not represent the cost of materials incurred by the subcontractor.

To be paid under the scheme, subcontractors must be registered with HMRC and obtain a personal Unique Tax Reference (UTR). The contractor must make a deduction from all payments for labour on account of the subcontractor’s tax and NIC liability. Subcontractors can apply to HMRC to qualify to be paid gross, i.e. with no amounts taken off.

The definitions of ‘contractor’ and ‘subcontractor’ are wide – e.g. if a business spends an average of £1 million or more a year over a three- year period on construction operations it is a ‘deemed’ contractor (which can include government departments, local authorities, or housing associations). Non-construction companies (and private households) spending less than £1 million a year are not affected by the scheme. See HMRC leaflet CIS 340 Guide for Contractors and Subcontractors. (www.hmrc.gov.uk/forms/cis340.pdf).