The key points of these changes have been well trailed prior to the release and have now been confirmed in the publication of the draft legislation. We will look at the options and outcomes that can be considered with agencies and end clients likely to select the one that aligns to their risk profiles.

Joint and several liability has been confirmed between the umbrella and the agency, the lead agency in the chain that is closest to the end client, or where no agency is in the chain between the umbrella and the end client. This joint and several liability relates to the correct application, deduction and payment of PAYE and where a shortfall occurs HMRC will be able to recover this from the agency or end client.

An important point to highlight with Joint and Several Liability is that it is not the same as debt transfer. The previous debt transfer rules we have seen allow the debt to be moved to various parties in the chain when others cannot meet the liability. Joint and Several Liability does not have this aspect it either sits jointly between provider and agency or jointly between provider and client.

Where it sits between provider and agency and the liability is not paid it cannot pass up to the client. This has, I believe, resulted in additional measures within the rules in an attempt to close a potential loophole of a rogue organisation owning both the provider and the agency and leaving HMRC high and dry. In closing this loophole it has resulted in creating restrictions on ownership of providers. Where common ownership exists between provider and agency then the liability sits jointly with the end client, agency and provider. Identifying owners of the providers is not necessarily that easy but care must be taken, particularly when you consider the new powers highlighted above giving HMRC more access to records etc.

Agencies should ensure they make clients aware of this as it will form a key part of the decision making process.

The guidance documents cover aspects of due diligence that can be carried out but to be clear there is no excuse to avoid these debts regardless of the due diligence carried out. In saying that due diligence will be a key part of a process as it demonstrates compliance to other aspects of legislation that require these checks to ensure the supply chain is compliant.

The legislation also allows HMRC to deem a provider an ‘umbrella’ in situations where a different label is used but the arrangements appear to be an Umbrella. If it walks like a duck and quacks like a duck then it is a duck!

This will allow HMRC to use the legislation in arrangements such as mini umbrella, false self-employed, payments to PSC and other situations where the understanding or expectation was that an umbrella was engaged. This highlights a warning for any of those arrangements that then seek to utilise self-employment (or PSCs) not disclosed to the client as a route to escape the new liabilities, on the surface it appears that such arrangements will not work.

A subtle but very important change is covered in the section relating to s44 where there has been non-disclosure throughout the supply chain on the actual basis of engagement.

We have seen in recent times an increasing amount of workers being classified as self-employed in construction with many agencies unaware that they hold the liability of any shortfalls where HMRC successfully argue that SDC applies. It is critical to understand these requirements as unlike the situation with IR35, HMRC holds most of the aces when it comes to SDC and has a low threshold to win the case, although the threshold has yet to be tested through the courts. it is essential that the client knows and is ‘on board with’ the actual basis of engagement.

We have also seen an increasing number of agencies relying on their providers to carry out the SDC assessments for them, in some cases this is supported by an insurance policy to provide reassurance to the agency. Many of the insurances we have seen contain requirements and provisions that effectively mean that cover is only available where the process has been carried out fully and correctly, effectively meaning that you would not need to claim. Where you would need to claim it is unlikely that the insurance would cover those situations.

It appears in the updated legislation HMRC are seeking to address this and reaffirming that the agency holds the liability and the only time they may have an excuse against this is where the end client has carried out and confirmed the SDC status of the worker, any other assessment appears to be worthless in the eyes of HMRC. There appears to be a drive to make the end client more involved in this process as they are the ones that are most likely to know the reality of the situation. Put another way, where the self-employed status has not been disclosed to the client the only SDC assessment that can take liability away from the agency will be one from the client.

They have also introduced the ‘term ‘purported umbrella company’. This allows for a reasonable assumption that the expectation was that the worker was engaged and employed through an umbrella company. That being the case it creates a full PAYE tax liability, which will generally be greater than the CIS deductions. The most obvious instance where this could occur is where the end client has, or suggests they had, no idea the workers were engaged self-employed. Where that was the case the purported umbrella company could be assumed and create liabilities for the umbrella, and where these were not met to the agency (or if no agency by the client).

There are a number of key points that must then be considered:

1. Insurance is unlikely to cover this situation

2. Agencies must have documentary confirmation on how the workers are engaged and this should include a statement requiring them to also notify the end client.

3. End Clients must always have accurate documentary confirmation from their agency how workers are being engaged, particularly when being engaged as self-employed

4. End Clients need to be involved in the SDC assessment and confirmation process

5. Umbrella companies would be advised to move CIS self-employed to a separate company to avoid the increased risk of confusion on engagement style. Do not refer to the CIS self-employed company as an umbrella as this will heighten the risk of purported umbrella.

6. Moving to a separate CIS company will raise the issue of the Construction Industry Training Board Levy [CITB] and this will also have to be considered.

This subtle but important change needs to be considered by all providers, agencies and end clients operating within the CIS sector.