A recent tax tribunal case has shed some light on how the control test in the new ‘false self-employment’ legislation, which applies from April 2014, may be interpreted by the courts. This legislation amended is known as ‘the agencies tax legislation’.
The issue concerned security guards who were supplied by a business to guard construction sites. HMRC had already concluded that these individuals were not employees of the business and so argued that the agencies tax legislation applied. The question was whether there was supervision, direction or control as to the manner in which the services are provided (SDC).
The case fell under the rules pre dating April 2014 and so it was essential for HMRC to prove there was SDC. The business argued that ‘client companies would have no involvement with how the licensed and specialist security guards performed their function’. HMRC in fact had no supporting evidence and so the tribunal found in favour of the business, agreeing with the taxpayer’s argument. There was therefore effectively no formal judgment on a set of facts, but in concluding in favour of the taxpayer the tribunal issued some guidance on SDC.
The tribunal said that the “most obvious situation in which the ‘control’ requirement will not be satisfied is where the particular service being rendered is one that is extraneous to the basic activity of the client” citing an example of a construction company bringing in a specialist provider to service its mechanical equipment. As the construction company itself does not employ its own staff to service the equipment, staff hired in to do the specific servicing, which is outside the range of its normal activity, would not be subject to SDC.
This decision provides a useful indicator of how HMRC and a tribunal may approach the issue of control. It also highlights the flaws in the test itself in that each case will turn on the specific facts. Since the default position from April 2014 is that there is control by someone, thus bringing the legislation into play, it is for agencies to show that this is not the case. Those that can show the hirer engages the workers for a specific task that the hirer could not normally perform itself will take some solace from this, but otherwise the agencies not paying by way of PAYE and NICs will be exposed, subject to the usual exceptions. Most cases of agency supply work do not relate to a specific project in which expertise is relied upon, and thus the new legislation will apply. Some argue this is unfair, particularly on those that otherwise are self-employed and invest in their own business services.
Adrian Marlowe, chairman of the Association of Recruitment Consultancies said, “This is certainly a point of concern as it seems very difficult for genuinely self-employed workers now to find work by supply through agencies, representing discrimination against self-employed workers, with a negative effect on flexibility of the workforce. We have raised this and other issues relating to this legislation with the Exchequer two months ago and are currently awaiting a reply.”