Common Sense Prevails: Government Heeds REC Call to Delay Full Implementation

By Ben Farber, Senior Policy Advisor  

The government’s response to the Onshore Employment Intermediaries consultation was released yesterday afternoon and common sense has prevailed as the government confirmed that while the legislation will come onto the books this April, the introduction of reporting requirements and associated penalties will be pushed back until August 2015, giving the industry a proper chance to adjust.

The consultation saw a significant response from a diverse range of stakeholders. Over 100 submissions were made, including 35 from employment agencies, 18 from accountancy firms and a number from construction employers and trade unions.

There has been some real movement from government on a number of issues flagged by the REC as major concerns. The most significant of these is a delay in the introduction of the reporting requirements and associated penalties until 2015 – a real win for the REC and our industry. The first report will now be due by 5 August 2015, reporting on the period 6 April 2015 to 5 July 2015 – a delay of nearly a year. This will give HMRC a chance to work with the REC and compliant agencies to ensure the enforcement system is robust and able to capture the real rogues that seek to avoid the legislation.

End-user liability was the other major risk to the success of the legislation and the government has shifted position on this point too. A new provision has been introduced that means where an agency is provided with fraudulent documents by a client or supplier purporting either, that there is no control (or right of control), or that the worker has had already had income tax and NICs deducted through PAYE by a business further down the contractual chain, the business supplying the fraudulent document, not the agency, will be held liable for income tax and NICs.

It is important to note that the government’s response refers specifically to fraudulent documents. We have already seen promotional material from intermediary companies suggesting that a simple spoken assurance that tax and NICs has been accounted for will be enough to guarantee agencies will not be held liable. We strongly disagree with this interpretation and we urge all members to seek firm written assurances from clients as to the extent of control they intend to exercise and from suppliers and intermediaries as to the manner in which tax and NICs have been deducted.

On Personal Service Companies, the government has reiterated their position that PSCs are out of scope of the new legislation as the profits extracted from PSCs are already taxed appropriately.  However, HMRC will move forward with the introduction of a Targeted Anti-Avoidance Rule (TAAR), designed to cover unforeseen avoidance tactics and to deter new avoidance arrangements. The government specifically refers to mass, enforced use of PSCs for all workers as one such tactic where a TAAR might apply.

All in all, this is a positive outcome for our industry and the major shifts on reporting requirements and end-user liability represent real victories for the REC and our members.

This blog has been temporarily edited while we seek further clarification from HMRC on certain points.