Energy Voice has been running regular articles about the pending HMRC changes that will see the current IR35 arrangement altered to prevent, we are told, tax avoidance.
The changes will impact workers currently operating as Personal Service Companies (PSC), albeit the emphasis for most of the Energy Voice articles has been about how the changes could impact the ‘end user’, that is the companies the workers are providing services to.
I haven’t as yet seen a word about how the workers will be affected, but given they are labelled as tax avoiders that’s maybe understandable.
I think it’s time someone said something about what’s going on for these workers and that’s despite the fact I’ve never been supportive of this type of engagement.
As a Trade Union official charged with trying to protect workers at their place of work, it is extremely difficult to provide support to the PSC as they have no employment protections.
They are not “employees” who enjoy regulatory and contractual protections and benefits.
The PSC can be terminated at anytime.
They have no redundancy rights, no right to notice, no disciplinary or grievance procedures that can be exercised, and they must pay for their own training, travel and other expenses.
The PSC worker is exposed and vulnerable, but they take that risk in return for the flexibility they have in providing services to different end users.
However, when the news came out about the changes to IR35 I assumed that many of those currently operating as a PSC would be moved into employment and become “employees” thereby attracting the same rights and protections as other employees.
I thought this was a reasonable assumption working on the basis that if you’re not self employed and working as a PSC, that you are paying tax via the PAYE system and you are paying “Employees National Insurance Contributions”, (Employees NI) you must be an employee, right?
Not so apparently. We are seeing the creation of a hybrid, something which has been described to me by a number of workers caught up in this situation as “a PAYE Limited Company”.
We have seen examples of contracts being issued to these workers which requires them to not only pay tax as a PAYE employee along with Employees NI, but also pay the “Employers National Insurance Contributions” meaning an additional 13.8% of their income, the liability for which would normally fall to the ‘Employing company’.
So what we are seeing is workers not only being taxed as employees to address the HMRC issue of alleged “tax avoidance” we are seeing the “employers” avoid the liability for Employers NI (13.8% of payroll) by passing it to the former PSC This cannot be what HMRC intended?
I read with interest the Energy Voice article on the IR35 subject from Michael Reid of “Merston Reid Accountants”.
In the article he makes reference to the liability for tax and NI brought about with the changes and states that;
“It is perhaps to avoid this risk that the contractor will add the person to the payroll rather than pay them through a PSC, or seek someone else to shoulder the tax risk such as an umbrella company.”
I wonder what Mr Reid’s opinion would be about Employers NI avoidance and whether that fits with the “umbrella company” approach which he talks about?
This is exactly what we are seeing across the sector. These umbrella companies, or ‘agencies’, are now exploiting this situation while protecting their new clients from the scrutiny of HMRC.
These agencies will enjoy a return from their respective contractor and oil company clients for the administration services being provided, and squeeze an additional return by avoiding any NI liability.
For the former PSC worker it is a pretty bleak picture. They will not enjoy the status of an employee and all the protections and benefits which that brings, far from it.
Instead the former PSC worker will remain exposed and vulnerable, subject to termination at the drop of a hat, no redundancy, no notice, no ability to challenge unfair treatment.
They will continue to pay for their training, their travel and any other expense incurred, and they will pay an additional 13.8% of their earnings on top of PAYE tax and employee NI deductions for the privilege.
That is, they will pay an additional 13.8% on top of the deductions normally taken from an employee who enjoys the protections and benefits that being an employee brings.
As these agency contracts put it: “For the avoidance of doubt, the Agency worker is not an Employee of the Employment Business (or the Hirer) although the Employment Business is required to make Deductions from the Agency Worker’s pay.”
This cannot be the intended outcome of the IR35 changes! If this is what HMRC were aiming to do then it is a rip-off on a grand scale. Not only that, it has the potential to seriously damage the energy sector in terms of attracting and retaining skilled and competent workers and above all, safe workers.