Mar 16, 2021
IR35 The state of play today, perhaps a surprise.
16/3 16:00
Historically
This is the original 1 9 9 4 enactment requiring agencies to operate paye on workers, 25 years ago is a long time and is long forgotten:
https://www.legislation.gov.uk/ukpga/1994/9/section/125/enacted
I think that’s the one. 1994 sounds about right.
It is very difficult trying to edit this to make it easier to read.
After section 203A of the Taxes Act 1988 there shall be inserted —
“203BPAYE: payment by intermediary. (THIS IS THE CORE MEANING)
(1)Subject to subsection (2) below, where any payment of, …. is made by an intermediary….
#(2)Subsection (1) above does not apply if the intermediary… deducts income tax from the payment he makes and accounts for it in accordance with PAYE regulations.
As you will see it is written in very obfuscated fashion.
It means “agents shall operate paye”.
So, now the current state of play.
Part 2, Chapter 7 Income Tax (Earnings and Pensions) Act 2003, section 44(2)(a)
44 Treatment of workers supplied by agencies
(1)This section applies if —
(a)an individual (“the worker”) personally provides services (which are not excluded services) to another person (“the client”),
(b)there is a contract between —
(i)the client or a person connected with the client, and
(ii)a person other than the worker, the client or a person connected with the client (“the agency”), and
(c )under or in consequence of that contract —
(i)the services are provided, or
(ii)the client or any person connected with the client pays, or otherwise provides consideration, for the services.
(2)But this section does not apply if —
(a)it is shown that the ‘manner’ in which the worker provides the services is not subject to (or to the right of) supervision, direction or control by any person, or
(b)remuneration receivable by the worker in consequence of providing the services constitutes employment income of the worker apart from this Chapter.
(3)If this section applies —
(a)the worker is to be treated for income tax purposes as holding an employment with the agency, the duties of which consist of the services the worker provides to the client, and
(b)all remuneration receivable by the worker (from any person) in consequence of providing the services is to be treated for income tax purposes as earnings from that employment, but this is subject to subsections (4) to (6).
Note that this is complex like the original rules when first enacted in 1994, but then law evolves like everything else and the complexity now is actually more clear than it was then, I think.
Social Security (Categorisation of Earners) Regulations 1978, Schedule 1, Part 1, paragraph 2
Same as above for NICs.
Control
HMRC’s point of view is very clearly demonstrated by this:
“the agency which contracts directly with clients in the UK to provide workers.”
So far as HMRC are and always have been concerned, work acquired via an agency is paye employment, whether temporary or permanent. They do allow that where the agency can demonstrate the worker is not subject to (or to the right of) supervision, direction, or control by any person, in relation to the manner in which the worker provides their services, then paye need not be operated.
Manner?
That word manner is crucial. It’s telling you how to do your job. Employees are told how to do their job, where the self employed are not. We don’t tell our plumber how to plumb, this is self employment. We may indeed tell our dometic cleaner how (we want them) to do the work: that’s employment. Not in fact exercising this power is not conclusive, one has to be able to demonstrate one does not have the right so to do, whether exercised or not.
Guidance examples
HMRC’s guidance example are skewed so that where there is no right, the circumstances are highly unlikely when the outcome does not suit HMRC. I.e they are not subtle at all, whereas life is. I suppose they are trying to present clear examples, but unfortunately they are thus unrealistic. Nothing strange in being biassed towards paying more taxes for a tax collector.
… end note: this is only the start of this stream of consciousness… and lacks the real points I have in mind, it’s just an intro as I check out the current law and guidance to see how it has changed since 30 years or so.
https://www.gov.uk/guidance/understanding-off-payroll-working-ir35
