Locums Umbrella Services issues legislation update October 2014
We are the only umbrella company which specialises in the healthcare sector and are best placed to provide you and your workers with an expert service.
IR35 Business Entity Tests
After a review by the IR35 Forum of the administration of IR35 (the Intermediaries legislation), HMRC has just announced it is withdrawing the Business Entity Tests (BETs) which were introduced in 2012 to assist businesses to self-assess their risk of IR35. The BETs will be withdrawn from 6 April 2015. You can find more information here: http://www.hmrc.gov.uk/news/ir35bet.htm
The IR35 legislation will continue to apply it is just the BETs which are being withdrawn. HMRC will shortly publish updated guidance.
Debt transfer risk
The Onshore Employment Legislation implemented earlier this year to eliminate false self-employment has a nasty sting in its tail with potentially damaging implications for recruitment agencies and their directors.
The legislation which was enforced on 6 April this year requires recruitment agencies to guarantee that any self-employed workers that they provide to end clients are fully independent and if an agency treats a worker as self-employed when they should have been taxed as an employee,the liability for payment of tax and NIC could fall on the agency and its directors.
Recruitment companies which contract directly with clients will need to make sure they have satisfactory evidence showing the worker is not subject to (or to the right of) supervision, direction or control.
Importantly, HMRC has clarified that they “do not consider a signed declaration from the worker that simply states they are not subject to (or to a right of) supervision, direction or control by anyone, constitutes sufficient evidence for the purposes of the Agency Legislation”. Agencies are left still seeking full clarification as to what does constitute evidence.
The law came into force on 6 April 2014 but the reporting obligations were delayed and will not take effect until the first quarter of 2015 and therefore the first return is due by 5 August 2015.
However, the delay in reporting is not a delay in the application of the new tax charge and if HMRC discover something after the start of reporting, they have confirmed they will be able to raise a retrospective assessment.
Your liability therefore has already been running for 6.5 months.
PSCs can fall outside of the legislation – but you should already have evidence from all of your workers who operate under a PSC.
Additional RTI record keeping requirements
In a further tightening, from 6 April 2015 there is an additional RTI record keeping requirement for agencies providing UK clients with workers who receive a gross payment. These returns must be made to HMRC on a quarterly basis and the first returns must be filed with HMRC by 5 August 2015.
As detailed in ESM2043, “from 6 April 2014 the agency must keep and preserve records and make returns for individual workers when they are not deducting income tax and National Insurance contributions at source for those workers through PAYE. They must have in their power or possession and return certain information about the worker, which will include:
information about how they are paid and engaged
reasons why income tax and National Insurance contributions has not been deducted by the agency
information about the business supplying the worker to the agency.”
There is an associated penalty regime which comes into force on 6 April 2015 for failure to make the required return and for incorrect returns which begins with a fixed penalty of up to £3,000 plus daily penalties of up to £600 for continued non-compliance.
The introduction of RTI and the burden being placed on the agencies to report the information under threat of a financial penalty, will provide HMRC with a list of every contractor who receives their pay gross together with the amounts they have been paid. Where HMRC believes that insufficient tax or NI have been paid, they will investigate.
What should you do?
You need to be certain that all of the PSC workers who operate through your agency pose no risk of the debt transfer provision – or it could be the directors of your agency who are personally liable.
A worker stating they will pay their full tax and NI due is not satisfactory.
Genuine PSC contractors look like they fall outside the scope of the Onshore Legislation (because the salary they draw through their PSCs, they file an RTI return and any genuine dividends drawn from the company do not arise as a result of providing a service to the end client but because they are entitled to it as a shareholder of the company) but their gross payments will be reported by you along with everyone else’s and HMRC may want further information to satisfy themselves that tax has been paid appropriately.
Non-compliant umbrella companies provide no protection.
Agencies and their directors are at risk.
Compliant umbrella companies fall outside of the legislation as they use the PAYE model and thus pay the tax and NI owed by the worker. They also ensure:
· Each worker has an overarching contract of employment.
· They do not breach the National Minimum Wage when paying their worker
· They provide access to pensions
· They comply with AWR
· They comply with Right to Work legislation
There are options your PSC workers can consider and we can help them to identify what is best for them, to minimise the risk to you. Your PSC workers could move over to a compliant umbrella company model such as the one we offer, or we can help them with a business review to ensure that they are genuinely outside of IR35. For those we find are inside IR35, we can look to see if they can move to a deemed salary route – our London-based sister company Bradleys Accountants Ltd, would be able to assist with that.
Helping you to minimise the implications of the legislation changes
Our directors have spoken to many healthcare recruitment agencies recently about the HMRC strategy and giving them tips to ensure they can put a mechanism in place to protect their own tax affairs we also help with a communication plan to brief your workers and help them to understand the implications to them.