HMRC’s plans to make employers and engagers responsible for operating new intermediaries legislation and determining whether workers using Personal Services Companies (PSCs) are paying the correct level of tax have come under fire in research commissioned by the department.
In a bid to tackle the issue of tax avoidance by individuals who would normally be taxed as an employee, but are supplying their services through an intermediary, typically a PSC, HMRC is consulting on whether employers and/or engagers should be made responsible for operating new intermediaries legislation, rather than the intermediaries themselves.
However, research carried out by for HMRC at the end of last year among government departments, public sector bodies and businesses of varying sizes suggests there is general resistance to the proposed responsibility shift across all organisations.
In highly negative reaction to the proposals, respondents said there would be a loss of flexibility, with organisations claiming HMRC was ‘passing the buck’ while they were unable to see an upside for them.
Respondents complained that they would have to set up expensive new administrative systems and criticised the increased monitoring requirements and expressed concerns about workers’ privacy.
There also was a desire for clarity in the implementation of and compliance with the new rules and a calls for simplicity and certainty, particularly in the employee test.
Survey respondents said HMRC’s new ‘supervision, direction or control’ test was not helpful, with the overall consensus being that it would encompass the vast majority of subcontractors, while failing to take account of more senior subcontractors who would, by their nature, be more independent in their work.
The report concluded: ‘The potential changes were not supported by businesses overall. Many used temporary staff and considered them to be central to the success of their business – primarily in terms of the flexibility and skills they provided. The option of shifting the responsibility for applying the intermediaries legislation was seen as undermining their business and the relationship with self-employed workers.
‘Businesses saw the changes as being potentially costly, burdensome and constraining. This concern was shared even by those who rarely used PSCs.’
The research found that checking of temporary staff’s status as a PSC or otherwise was less formal or widespread outside the government and public sector, where there were strict guidelines.
The report states: ‘There was a common assumption particularly evident in smaller organisations that subcontractors will deal with their own tax and that this is in the “nature” of being self-employed. Therefore many organisations, particularly smaller ones, stated that they do not ask about tax status.’