Paying contractors gross puts agencies at risk, experts claim

Tuesday 15 April 2014

Agencies that pay their contractors gross are at risk from false self-employment laws that can into effect on April 6th.

Law and compliance specialist Lawspeed is warning agencies that they may find themselves on the wrong side of the law if they don't review their arrangements immediately.

Adrian Marlowe, managing director of the firm, said: "Recruitment agencies contracting directly with hirers are liable for PAYE payments if the new rules apply. This means that they should be diligent right now in checking that the individuals they supply are not being paid gross by the intermediaries they are engaged through.

"This issue is of particular importance to those operating in the construction industry, where it is common for gross payments to be made under the CIS tax scheme."

He added that the law is being applied with no exceptions and there is no provision for agencies to put off dealing with the issue. Failure to tackle arrangements immediately could cause some to pay back payments to HM Revenue and Customs (HMRC).

The changes were set down in the finance bill 2014 and require PAYE to be applied to payments unless it is shown that the worker in question is not under supervision, direction or control (SDC test).

All intermediaries fall under the legislation and the debts of liable agencies can be transferred to directors of the companies.

However, debts do not apply if a contractor has already been paid for the work done by way of employment income.

Mr Marlowe explained that HMRC will work from an assumption that an individual is working under control. Therefore, the responsibility lies with agencies to establish otherwise.

"This is against the backdrop that our reading of the law is that it applies to any services performed by an individual whether through a company or otherwise, regardless of sector," he said.

Mr Marlowe added that simply asking a client if there is an SDC is not sufficient and agencies will be liable if they get it wrong.

Agencies will be able to learn their options and understand the rules better at a false self-employment seminar in London on April 15th. HMRC officials will speak at the event, as will Lawspeed.

For those required to submit PAYE, the government is urging companies to do so in real-time.

In March, over 70,000 employers were sent an email telling them they must switch to the new system by the end of the year or face penalties of at least £100.

The sum of the penalty depends on the number of employees and the the length of time involved.

Ruth Owen, HMRC's director general for personal tax, claims that over 99 per cent of PAYE records are already reported in real time, with businesses claiming it's easy to use.

"So those who have not begun using the system should not stick their heads in the sand. They need to act now to ensure that they don’t get a penalty at the year end," she said.

By Victoria McDonnell

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