The Onshore Intermediaries Legislation has been in effect since the start of April 2014 now and most recruiters are probably busy getting to grips with understanding how to comply with the new rules.
Recruitment businesses may be moving workers on to either agency payroll or over to an umbrella company in order to comply with the legislation.
Here, we’ll recap what the Onshore Legislation is all about and how recruiters need to be working to ensure they comply with it in the future.
Overview
The legislation was introduced to crack down on false self-employment, whereby workers were avoiding paying full amounts of income tax and national insurance contributions (NICs) to HM Revenue and Customs (HMRC) by operating through an intermediary service.
Therefore, the government brought in new rules to stop this from happening. Under the new rules it is the employment intermediary – the company placing workers with clients on site – that is responsible for ensuring that workers are genuinely self- employed. If the worker is “controlled” by any person in the contractual chain then, under the new rules, he will fail the self-employment test. It will be up to the employment intermediary to satisfy HMRC that the worker is self-employed otherwise it will be liable for the unpaid tax. This will catch recruitment businesses as well as general sub-contractors who use self-employed workers where additional labour is required.
Importance of compliance changes
Following the introduction of the legislation, recruiters are now carrying out due diligence checks on all contractors listed on their books.
If you are the party placing the worker with a client on site and you wrongly determine a contractor’s employment status you will be liable for paying any unpaid tax to HMRC.
The legislation also includes rules about the completion of paperwork and tax returns, with records now being required to be submitted to HMRC (from August next year).
If you have workers that you are not sure are genuinely self-employed you may need to consider alternative options such as paying them through your agency payroll or through an umbrella company. Some workers may be able to work through PSCs providing they fall outside IR35.
It’s extremely important that as a recruitment business you’re complying with the legislation, as failure to do so could see you facing significant penalties and the liability for backdated payments to HMRC.
Moving forward with the legislation in the future
The Onshore Intermediaries Legislation will obviously change the way in which some workers are employed, meaning some contracts will need to be altered accordingly, but as long as new employees comply with the rules from the off, there shouldn’t be any trouble. Payroll service providers should be well-equipped to assist here.
It is important for recruiters to remember that the only workers classed as being fully self-employed are those who receive absolutely no instruction or supervision in their work, provide all their own tools and determine their own location and working hours.
If they are not self-employed, then as a recruiter, you need to make sure they continue to pay the full amounts of income tax and NICs to HMRC that regular employees are required to.