ARC seeks review of false self-employment test

Tuesday 6 May 2014

The Treasury minister is being petitioned to review the new false self-employment test.

In a letter, the Association of Recruitment Consultancies (ARC) explained that agencies are required to collate evidence from third parties to argue that the SDC test has not been satisfied but currently it is not specified what constitutes evidence.

The SDC test looks at whether anyone can supervise, direct or control (SDC) how the work done by an individual is completed. If it is deemed that it can be, the person in question is not thought to be self-employed.

This was set down in the Finance Bill 2014 to crack down on the use of the self-employed supply model in a bid to reduce tax and National Insurance Contribution payments.

While it has been stated that contractors will not be unduly affected by the changes, there has still been concern among professionals.

Adrian Marlowe, chairman of the ARC, said: "This law applies to consultancies and agencies in the UK that supply self employed individuals. The default position is that whatever the role or seniority of the worker the agencies supplying them will have to apply the PAYE rules to payments due, without any allowance for expenses, unless the agency is willing to take a risk."

"Agencies are not lawyers," he continued, "and whilst an agency can argue that the SDC test is not satisfied it needs evidence from third parties to be able to do so."

"It means that an agency who is told by a client that there is no SDC could still be liable for the PAYE and employers NICs if it transpires that SDC was present, unless the client was deliberately dishonest in making the statement," Mr Marlowe concluded.

There continues to be much confusion surrounding the false self-employment laws and who could find themselves liable. Lawspeed recently warned agencies that pay their contractors could be at risk if they don't review their arrangements.

All recruitment agencies contracting directly with clients are liable for PAYE and must stop paying individuals in gross.

This will have particular ramifications for construction industry freelancers who are often paid gross under the CIS tax scheme.

Agencies are reminded that any debts can be transferred to directors and compliance is essential.

HM Revenue and Customs will work from an assumption that a contractor is working under control, so it is the responsibility of agencies to prove they are not. Of course, this becomes challenging due to the uncertainty surrounding the provision of evidence, but every attempt to comply must be made.

It will not be sufficient for an agency to simply ask a client if there is SDC. If this is the approach taken and it is found to be wrong, the agency will be liable.

It is now crucial for a proper understanding of the new laws to be established. The government has yet to yield to calls for clarification and until this time businesses will still need to ensure they comply to the best of their ability.

By Victoria McDonnell

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