There are a number of providers who are now offering solutions which effectively use a limited company payment intermediary to engage and supply 'self-employed workers' to recruitment companies.
In these arrangements the recruitment company contracts with a limited company, typically established by the service provider, and the limited company would then engage workers on a self-employed basis to fulfil the terms of the contract.
The arrangement is used as recruitment companies will not engage self-employed workers directly as they are prevented from paying the workers gross and they could also become liable for any unpaid taxes. Ironically these new arrangements may well leave the recruitment company in exactly the same position.
Crawford Temple Managing Director of Professional Passport commented: "I believe the reason we are now seeing so many of these arrangements coming to market is as a direct result of the GLA case with FS Commercial and HMRC’s clampdown on the ‘payday by payday’ tax relief models. The result of this increased compliance activity is that there are a number of recruitment companies who previously used the ‘payday by payday’ models and are now looking for new arrangements for their workers."
One of the ‘benefits’ of the ‘new’ model is that self-employed workers are not subject to National Minimum Wage Rules and therefore they can provide an instant and ready-made replacement for the ‘payday by payday’ models.
Crawford Temple Managing went on to say: "If we ignore all the moral issues with exploiting vulnerable workers and putting these workers in a significantly disadvantaged position with regards to State Benefits; the fact that they will lose any entitlement to The Universal Credit; the fact that they also potentially could lose State Pension Benefits - if we ignore all of that, which I don't think we should do, and look solely at the issues from a compliance perspective I believe that many of these arrangements could represent a higher risk than the ones they seek to replace."
In meetings and discussions held with HMRC they have made it clear to Professional Passport that they see many of these types of arrangements as aggressive and, where this is the case, they would seek to challenge them on one of two fronts:
1. The provider is caught by Chapter 7 of ITEPA
2. The arrangements fall within the Managed Service Company Legislation - Chapter 9 of ITEPA which of course presents a financial risk to the recruitment companies under the Debt Transfer Rules.
Either one of these scenarios does not represent a good outcome for anyone involved.
Professional Passport believes that these arrangements could represent a very high risk to the recruitment companies that use them and therefore they have taken the decision that we will not be approving any providers that promote these as part of their service offerings to contractors. [The rules under the construction sector are different since there is an HMRC approved Construction Industry Scheme which sets out the rules for how payments to subcontractors for construction work must be handled by contractors in the construction industry. Our comments therefore relates only to providers offering these arrangements outside of the construction sector.]
Crawford Temple continued: "I don't believe the providers promoting these arrangements have the workers best interests at heart and they are doing nothing to improve the level of professionalism and compliance across the sector."
HMRC has made it clear to Professional Passport that they recognise that for whatever reason, some genuinely self-employed individuals are operating through self-employed intermediaries. However, they are also aware of the use of self-employed intermediaries to disguise employment, including the marketing of such intermediaries to businesses suggesting that the business move payrolled employees off the payroll to be paid through the intermediary as “self employed”. Where intermediaries are constructed and operated for the purpose of avoidance, those operating such intermediaries should expect to be challenged by HMRC and HMRC will use all their available powers to seek recovery of any shortfalls of taxes due; including pursuing directors individually for recovery of monies.