Contract workers short term solution long term problem

1
Contract workers short term solution long term
problem?

• Carolyn Walsh
• Howard Royse

2
Our Background

• Howard Royse
• ICAEW representative on Construction
• Industry Reform Intervention Panel (CIRIP)
• Carolyn Walsh
• Consultation Panel on Tackling Managed Service
  Companies (MSC Legislation)

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Monthly Declaration

• The employment status of each individualhas
  been considered and payments have not been made
  under contracts of employment
• CIS300 monthly return of payments to
  subcontractors

4
HMRC aims

• We have a figure for extra yield of 180 million
  if people are classified properly under CIS.
  Currently a lot of people are paying the wrong
  tax and we will have no sympathy for them as we
  tighten things up.
• Doug Tweddle, CIRIP chairman

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Costs of incorrect status

• Cost of engaging an individual subcontractor at
  2000 per month for three months 6000
• Cost of engaging that person who is subsequently
  held to be an employee
• Tax _at_ 22 1320
• Employers NI _at_ 12.8 768
• Penalties for an incorrect monthly return, 3 _at_
  3000 9000
• Plus cost of paying the worker, 6000 grand
  total of 17088 (plus interest on unpaid tax
  NI)

6
Status Check

• www.status-check.co.uk

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MSC Legislation

• An overview of the consultation process on
  Tackling Managed Service Companies

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Extracts from Consultation Document

• While information on the range of sectors in
  which MSCs operate is limited, they have a
  significant presence in construction, information
  and telecommunications sectors and engineering
•   
• Workers in MSCs are almost invariably not in
  business on their own account and the underlying
  nature of the contracts in which they are
  involved is one of employment.
•  
• The strong growth on MSC schemes constitutes a
  significant and increasing risk to the Exchequer

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(No Transcript)
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IR35

• MSC scheme providers are aware that the
  intermediaries legislation may deter workers from
  entering schemes and so some offer workers IR35
  proof contracts and IR35 insurance
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Compliant Service Providers

• Not surprisingly therefore, compliant service
  companies have made representations that they are
  currently at risk of losing clients to MSC scheme
  providers. Similarly some agencies who properly
  advise on and apply the Intermediaries and Agency
  legislation have said that they risk losing
  business to agencies who automaticall put workers
  into MSCs
•  
• S61B (4) Chapter 9 Income Tax Earnings and
  Pensions Act 2003
• A person does not fall within the subsection
  1(d) merely by virtue of carrying on a business
  consisting only of placing individuals with
  persons who wish to obtain their services
  (including by contracting with companies which
  provide their services)

12
Extract HMRC Website FAQs

• How do these new rules fit in with the
  Construction Industry Scheme (CIS)?
• Employment agencies need to be clear
  regarding their obligations
• under the CIS in terms of payments made to
  contractors.
• Will all workers who provide their services via
  intermediaries be forced into direct employment
  with their clients?
• No. There is no question of the Government
  outlawing service companies. These rules simply
  mean that workers in MSCs have to pay employed
  levels of tax and NICs.

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Employment Tribunals

• It is widely perceived that an individual
  working though an intermediary company is not
  entitled to employment rights form an agency or
  end user client (though employment tribunals and
  the Courts can look through the corporate
  structure to the underlying relationship
• HMRC Tackling Managed Service Companies
• We would finally comment unfavourably that
  whilst the first respondent is a significant
  government organisation it appears to have truck
  with questionable employment practices involving
  thinly veiled attempts to avoid appropriate tax
  and national insurancethe situation probably
  first evolved from the first respondents
  endeavours to rid itself of employer
  responsibilities and contract for its labour
  requirements through agencies.
• Employment Tribunal, Osborne v UKAEA
•  

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Osborne v UKAEA 2003

• the Tribunal expressed surprise that while
  the other parties all went out of their way to
  deny any employment relationship with Osborne,
  Brookson was keen to take on the mantle of
  employer in what the Tribunal regards as a legal
  fiction even to the extent of making a guarantee
  payment of 85 to him in April 2002 in pursuance
  of the Employment Rights Act 1996.
• Instead the Tribunal considered that Brookson
  was not the employer of Mr Osborne. It did not
  direct him in any way nor have any control over
  him and In fact, it really had no knowledge of
  where he was. In a damning indictment of the
  role of such composite umbrella companies the
  Tribunal concluded that..the second
  respondent was an artificial device set up to
  facilitate the applicant and others to avoid
  legally the incidence of income tax and National
  Insurance which otherwise would have obtained

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Summary

• Recognise the HMRC view on employment status
• Understand the legal view using case law
• Consider Employment Tribunal findings
• Dont rely on employment agencies and their
  partners to handle employment status
• Create an effective employment strategy for
  contract workers