Missing the boat when considering the freelancer option?

The off-payroll working rules have now been in place for over 6 months and after an initial hard line being taken by engagers it appears we are starting to see a slight change in approach by some of the bigger users of PSC contractors who had previously adopted a blanket inside off-payroll working attitude to engagements.

This shift in approach by engagers suggests that they are finding it more and more difficult to engage with the appropriately-skilled labour required to complete contracts, creating the potential for penalty clauses to become a reality for late completions.

With the potential for more engagers to follow suit and relax their overly-stringent processes for the engagement of off-payroll workers, then perhaps these engagers should also consider reviewing the way that they engage with self-employed workers, given that off-payroll legislation does not apply to the self-employed.

Over the last six months there have been numerous incidents of end-engagers suggesting to both agencies and sub-contractors directly that, due to the changes brought about by the off-payroll legislation, they are no longer prepared to risk the wrath of HMRC and will only consider engaging individuals whose payments are subject to PAYE.

Self-employment and Off-payroll working/IR35 rules

It is important to remember that neither the IR35 nor off-payroll working rules need to be considered in respect of an engagement involving a self-employed worker, as the worker does not work through their own intermediary such as a limited company or partnership.

What is the difference between a sole worker and a limited company?

Essentially a self-employed person is the sole owner of their business and there is no legal separation between them as the business owner and the business itself.

A limited company is a business that is a distinct legal entity in its own right and is separate from the business owner(s). This is the case even if it is run by just one person or several people.

Off-payroll working rules and IR35 considerations

Both the off-payroll working rules and IR35 look to consider the contractual terms and underlying working relationship between an individual worker who is providing their services through their own intermediary such as a personal service company (PSC) or a partnership to an end-client, either directly or via an employment intermediary such as an agency.

The key consideration is employment status and whether the individual worker would be deemed to be an employee of the end-client were it not for their services being provided through their intermediary (PSC). If the answer is yes, then the IR35 or off-payroll working rules would apply and a deemed payment calculation is required, and PAYE will need to be operated.

Self-employed worker and Employment Status

Whilst off-payroll working and the IR35 rules do not apply to the engagement of a self-employed worker, establishing the correct employment status position does. It is the responsibility of the engager of the self-employed worker to determine whether the contract and working arrangement is one of employment or self-employment.

Unless the end-client is the entity that is directly engaging the self-employed worker, they will not be responsible for establishing the self-employed workers employment status.

Self-employed worker and Section 44 Agency legislation

From April 2014 new rules apply to the operation of PAYE on self-employed workers who work for an end-client via an agency. For the purposes of the Section 44 Agency legislation, an agency is any third party interposed between the worker and the client for whom they provide the services.

Therefore, the legislation needs to be considered where an intermediary (e.g., an agency) is in a contractual chain between the self-employed worker and the end-client.

Where someone in the contractual chain has (or has the right of) supervision, direction, or control (SDC) over the manner in which the worker provides their services, then the agency legislation will apply, meaning the worker is treated as holding an employment with the agency and PAYE must be operated.

Where SDC does not apply, self-employed workers can be engaged and paid without the requirement for PAYE to be operated by the agency. However, the agency must hold suitable evidence to demonstrate that the worker is not subject to SDC, and an employment intermediary report must also be submitted to HMRC.

Here to Help

The introduction of the off-payroll working rules into the private sector does not impact the engagement of self-employed workers. Self-employed workers engaged on a compliant footing can continue to provide their services allowing clients to benefit from a flexible workforce whilst managing their overhead costs.

The Guild operate compliant solutions to the engagement of self-employed workers across construction and other sectors and has a strong background in employment status compliance, thereby providing businesses the freedom to benefit from a self-employed workforce.

GuildHUB is an information resource, provided free of charge by The Guild, for accounting professionals and their clients.  If you wish to contact The Guild, please email contact@trusttheguild.com.

The content of this article is for guidance only and shall not constitute advice. Please seek independent advice or contact GuildHUB for information about its services.

BUSINESS ADVISORY
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GuildHUB
11/2021
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