07 Jun 2014

Told you have to be on PAYE?

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We have received a considerable number of phone calls from individuals who have been told by their recruitment or umbrella company that they will no longer be able to work on a self-employed basis and will have to have their income subject to PAYE and national insurance at source from now on.

In many cases the companies have not clearly explained the reason why such a move is necessary which has caused a great deal of confusion and uncertainty.

The main reason why some companies will no longer engage self-employed individuals is because the government amended legislation in April which has a direct impact on any business engaging the use of self-employed persons. For any business to engage the services of a self-employed person they will need to be able to show to HMRC that the individual is “not subject to supervision, direction or control” as to how the services are provided. If they are unable to prove this, the agency will be liable to pay the PAYE and national insurance that should have been deducted and paid to HMRC.

On the face of it, this may not seem like such a big deal because most of the people we have spoken with have said something along the lines of “but I am not supervised, directed or controlled over how I provide the services, why am I therefore being forced into PAYE?”

This is a good question and the reason is because that the agency have to be able to evidence this lack of control to HMRC – this is not an easy thing for them to do with absolute confidence. It is helpful if you are able to confirm that you are not subject to that level of control but the agency would also need confirmation from the end client as they may have a different view or believe that although they may not supervise, direct or control how the services on a day to day basis, they have the right to do so in which case PAYE and NI would still have to be operated.

This leaves the agency in a difficult position and unless the client is willing to confirm the lack of control, the agency will be putting its business at risk by allowing people to continue on a self-employed basis. This is why many agencies have therefore had to shift people from self-employment over to PAYE. It is logical to think that simple confirmation from the client to the agency about control would sort the whole problem out and whilst that is true, clients are not so eager to confirm a lack of supervision, direction or control. The reason being that the legislation also carries with it provisions whereby the client would be liable for the PAYE and national insurance if they provide “fraudulent” information about control. This has the knock on effect that clients are reluctant to confirm the position to the agencies (even though they could provide an honest opinion without it being fraudulent) and the agencies have to therefore ensure PAYE is operated in full.

This may seem harsh and unfair to the individuals who enjoy being self-employed and will consequently take home less pay under PAYE (especially where the individual is certain they are not actually subject to supervision, direction or control) but it is unfortunately a consequence of the legislation the government brought in at the beginning of April.

Agencies and umbrella companies still have the scope to engage people on a self-employed basis but it will depend on whether they want to seek confirmation from their clients and the clients are willing to give that important confirmation as to the position.

If you don’t fully understand the legislation and are being told you will have to be on an umbrella company’s PAYE or form your own limited company we can explain the options available and see what is the most suitable way forward.