HMRC rule changes to combat false self-employment


In April 2014, HMRC changed the law to try to cut down the use of intermediary businesses (such as payroll companies and employment businesses) to promote false self-employment. Since this change to the law:


• PAYE and National Insurance Contributions (NICs) must be deducted at source from the wages of any worker supplied to a hirer by a third-party intermediary such as a payroll company or an employment business, unless that intermediary can prove to HMRC that the worker is genuinely self-employed;


• Travel and subsistence tax relief has been restricted; and


• Quarterly reports must be provided to HMRC of any worker whose pay is not having tax and NICs deducted, as well as an explanation as to why deductions are not being made.


Initially unions cautiously welcomed this new regime, but as always, new avoidance mechanisms emerged, including, in particular, a significant growth in the use of umbrella companies (see below), described by construction union UCATT as “an extreme form of workplace exploitation”.