New UK Finance Bill in effect – Self Employed? Watch out!!

[James McLauchlan]

In the UK.
As of 6th April 2014, a new Finance bill came into effect.
It has sections that will have a profound effect on self-employed subcontractors working offshore… and maybe onshore also!
The bill contains legislation designed to clamp down on "false" self-employment. The definition of self-employed has also been tightened and, as such, any subcontractors who do not have their own Ltd companies or who are not PAYE, will now be subject to tax and NI deductions when working in the UK or UK Continental Shelf.

PLEASE SEE ATTACHED DOCUMENT.

The attached document says……

The Finance Bill has been subject to much speculation since it was announced in Autumn 2013. As part of the legislation contained within the bill, the ‘False’ Self-Employment (Onshore Employment Intermediaries) legislation will come into effect on 6th April 2014.
It will affect self-employed people who are employed via intermediaries such as employment agencies, payroll or umbrella companies (any business that supplies labour) who currently only pay taxes as a self-employed person..

A well known UK ROV agency recently recently sent an email out… I assume to all it’s ‘temporary workers’ . They also attached a document explaining the legislation. There was no named source on the document, so it has been attached in it’s original .pdf form.

(Note! – This is not an individual agency issue!! IMHO this is just the tip of the iceberg. So, I’m not mentioning the agency’s name at this point as I would suggest they are all going to try a similar approach, so it makes no sense to single just one agency out at this juncture).

Please don’t try to be the clever P***K to name them!!

Within the email the agency indicated that a ‘self employed temporary worker either has to create/operate under a Ltd Co or go PAYE.

The attached document says……

The Government have introduced the legislation to clamp down on the use of ‘false’ self employment models where workers and employers avoid tax and where the employer also avoids their other employment responsibilities.

Lets talk about PAYE only.
The agency says…
For those wishing to be paid PAYE via (insert agency name), we can do this for you, however your current gross rate would be subject to a deduction of 13.8% for Employers NI contributions and a further 2% for administrative charges made by HSG, this would then give you your Gross PAYE rate which in turn would be subject to PAYE and employees NI as with any other UK taxpayer.

Notice that the government sees the employers NI contribution as just that.. an employment responsibility of the employer. Yet, the agency (in their offer to take people on PAYE) seem to think that it is OK to deduct the 18% employers NI contribution from the agreed day rate and charge an additional 2% admin charge. I have doubts about the legality of that.

I feel this is a knee jerk reaction to the rapid introduction of the legislation. There clearly is not enough margin in currently agreed Client/Agency contracts for the agency to meet their legal obligation by them paying the 18% Employers NI contribution, so the agency simply sees the way forward by way of deducting the Employers NI contribution from the workers agreed gross day rate.

For PAYE, I’m going to suggest that to make this comply with UK employment law the agency would likely have to drop the Gross day rate by 18%!! Then they would pay 18% Employers liability insurance out of what they are paid by their client.

So, don’t be too surprised to see agencies coming up with a new contract that shows an 18% lower day rate so that they can legally pay Employers NI contribution.

The attached document does go on to say…..

However, ‘anti-avoidance’ measures will be introduced in the legislation to stop intermediaries forcing Contractors into becoming
PSC’s just to avoid PAYE and NIC’s (where the only reason the PSC is being set up is to avoid tax).

This will create another headache for agencies I’m sure!

I now have to wonder now about the merits of the existence of agencies at all in light of the new regulations. I can see people either dropping out of the game at the thought of (in effect) an immediate 20% pay cut (by way of NI contributions and ‘admin’ charges) or going Ltd Co.
So why have an agency at all?

I also feel that new legislation may well kill off a plethora of smaller agencies that have popped up over recent years. I doubt of they could cover the cost of taking people on PAYE. So, if they can only take on Ltd companies there is not much room for manoeuvre for them is there?

false_self_employment_2014_04_15_722.pdf

Description: False Self Employment Legislation. 2014-04-11

Filename: false_self_employment_2014_04_15_722.pdf

Download

[James McLauchlan]

After giving this some further thought….

I would suggest that, for those of you living outside the UK (no matter what nationality you are) and working in the North sea through an agency, you will either have to operated under a Ltd Co (This almost certainly means carrying your own UK employers liability insurance) or be taken on PAYE in the UK and have UK NIC’s and tax deducted at source.

[Andy Shiers]

Phew ! 8)
That’s a relief 🙄
I’ve had Ltd status for 20 years ,
Glad to see this happening , it means no more grey areas !

[Richard Browne]

How will or could this affect the SED please?

[Ray Shields]

How will or could this affect the SED please?

SED is only available to employees, and has nothing to do with National Insurance.

[liddelljohn]

What if you have an offshore LTD company ???? or a subsidary company or use and umbrella company ????

[James McLauchlan]

How will or could this affect the SED please?

SED is only available to employees, and has nothing to do with National Insurance.

Not sure about that Ray, although I’ve never claimed it. I seem to think it’s available to all those that pay tax in the UK… as long as they qualify.

I agree SED is nothing to do with National Insurance Contributions

[James McLauchlan]

What if you have an offshore LTD company ???? or a subsidary company or use and umbrella company ????

The legislation does not say…. ‘Must be UK Limited Company‘, or at least I can find no reference to that online and I don’t expect to either.

I would suggest any limited company should be acceptable as long as you can produce:

a) Certificate of incorporation
b) Certificate of Employers liability insurance. (A non UK limited company can get this insurance.)

There may be an exception to that logic if HMRC sees fit to believe that your ltd co is registered in a tax haven and you are also not resident in that country and therefore pay no taxes. You might need to take tax advice form a CA on that.

Here are two real life examples that work:
1) When living in Portugal I previously operated under our own Portuguese Ltd Co. We had three employees and carried employers liability insurance underwritten by Lloyds of London. We paid corporation tax and employee (PAYE) taxes in Portugal, which is part of the EU. That company is now closed.

2) Now, living in BC, Canada, I am an employee of my limited company (50% shareholder) incorporated in BC, Canada. We have two employees and carry employers liability insurance underwritten by Lloyds of London. All earnings go into our business account. We pay ourselves a monthly salary. We pay corporation tax and employee (PAYE) taxes to CRA in Canada. Canada and the UK have reciprocal tax agreements. That seems to tick all the boxes.

What I will suggest is the writing is on the wall for all those that currently do not pay any tax on their worldwide income. If you are a UK citizen, work in the North Sea through a UK agency and are not registered as permanent resident in another country (like living on visitors visa’s), nor pay income tax there, you are likely to be chased down by HMRC at some point. When I lived in Asia it used to seem good enough if you simply met the UK ex-pat requirements and did not reside in the UK, so did not need to file a tax return to HMRC and at the same time paid no taxes in the country you lived in. I seem to get the feeling that this is no longer good enough. I know that USA and Canadian citizens have to declare worldwide income no matter where they live. I don’t see the UK being that far behind in that respect.

If you are an employee of any company (yours or someone else’s) and pay taxes and National insurance (or the NIC equivalent in your country of residence) then you should be good. If you are not an employee of any company and work in the North Sea and pay no taxes anywhere, nor make an annual tax return anywhere, then you may be in for a surprise at some point in the near future.

It will all end in tears unless you take pre-emptive steps and stay ahead of the game.

SED is another matter.

[liddelljohn]

I think you have a point James ,,but an offshore Ltd company in a ‘non Tax haven deliniated OECD country ‘ would tick all the correct boxes under international law and be difficult for HMRC to challenge as UK comes under the same heading itself
so Ltd company for a NON resident expat in, USA ,UK Israel,malaysia,denmark,singapore and a few other countries would still be OK as the OECD states those countries have non tax haven status even though non resident expats can hold legitimate LTD companies in those juristictions TAX free and with simple nominee arrangements or LLP status for the company very little will change .

[T-Boy]

Good ‘ole HMRC.

Q-What is left to entice new folk to work offshore…?
A: not much.

HMRC would benefit from chasing the big corporations like Vodaphone et al for the 10’s of millions owed, but of course HMRC have done a deal with them so that’s OK.

This, as I see it, just closes the gap of a TCW using a UK agency and being paid gross, filing SED, not having paid tax at source and therefore not having to claim it back, to now having to pay your dues and then claiming it back if you qualify fro SED.

It helps HMRC control and hang onto your monies for a bit longer…Think of all that interest!

Agencies, a lot of which don’t even have a scooby of what is going on, are of coarse very narked and have asked that this legislation be delayed – not on your nellie! says HMRC… You have a year, after which HMRC will start fining.

I’m sure that the agencies and clients will help ease the deficit….

😉

Make hay whilst the glimmer of sun shines!

[James McLauchlan]

I tried to apply logic to much that I wrote above. Unfortunately, that is not always the prevailing factor where HMRC are involved!

All I suggest is people make sure they are squeaky clean and have all their ducks in a row. The days of hanging out, tax free, in Thailand (for example) on tourist visa’s (something I happily did in the past 😉 ) may be fast drawing to a close IMHO.

Over the years successive UK governments have failed to correctly govern fiscally. They are now making the little man in the street pay for it!

Good luck! :tup:

[Richard Browne]

James can I ask why you say the days of hanging around in Thailand on your time off between jobs on a tourist visa are coming to an end??TAXFREE.
Whats to stop anyone from doing that tax free for the rest of their lives, as long as they are working outside the UK, ie Asia what does that have to do with the Inland Revenue, nothing from the way I see it as long as days out of the UK are satisfied, and no ties..ie house,wife, etc..

[Richard Browne]

I hope this also applies to all the overseas ROV pilots that come to work in the North Sea on tourist visas employed by the agencies, and work in the UK tax free and a lot of the time don’t pay any tax in their own country either..

[James McLauchlan]

James can I ask why you say the days of hanging around in Thailand on your time off between jobs on a tourist visa are coming to an end??TAXFREE.
Whats to stop anyone from doing that tax free for the rest of their lives, as long as they are working outside the UK, ie Asia what does that have to do with the Inland Revenue, nothing from the way I see it as long as days out of the UK are satisfied, and no ties..ie house,wife, etc..

Most of what I said was about the relevance of the OP. Those Brits living overseas working in the UK on day rate as ‘self employed‘ workers. It’s this ‘self employed’ aspect that HMRC wants to eradicate offshore as they see it as a tax revenue leak IMHO.

However it’s nothing to do with how you see it. It will be all to do with how the authorities in your country of citizenship see it!

The reason I suggest this is, it is my understanding that currently USA, Canadian, Australian and New Zealand Citizens/permanent residents living/working overseas already have to declare worldwide income and submit a tax return to their relevant tax authorities in their country of citizenship/residence, no matter where they work/live. (For the benefit of this thread.. someone correct me if I am wrong so that we get the story straight).

It’s clear that back in the UK, HMRC are desperately trying close all the tax revenue drains/loopholes. One of those is that the UK currently does not require UK ex-pats to submit a tax return if they have no ties to the UK. IMHO that might change and it won’t require too much of a shift in tax law for that to happen.

I see it potentially going like this. The law is adjusted so that all UK citizens, no matter where they reside or work, have to submit a tax return to HMRC. If they are entitled to not pay tax to HMRC (maybe because they pay tax elsewhere within a country that has a reciprocal tax agreement in place with the UK) then all well and good. They will also likely want to see proof of residency somewhere plus proof that you submit a tax return in your country of residence. If it is shown that no tax is being paid anywhere on worldwide income then HMRC will no doubt want a chunk of it!

I am a UK citizen living in Canada as a permanent resident. However as a British Citizen it would come as no surprise to me if the above took effect. If it didi I’d simply have my accountant fill out the required return, I’d sign it and they’s send it off to HMRC. Because I pay taxes on all worldwide income here in Canada and this country has a reciprocal tax agreement with the UK then that should satisfy HMRC and they’ll have no demands. (not guaranteed though).

No point in arguing the toss as to whether that is any of HMRC’s business or not where you live and work. If it’s UK law and you are a UK citizen then you will either comply or be nailed for not complying.

The tax noose is tightening. Those that haven’t’ noticed have been too pissed, too high for too long or don’t give and shit and think it will not effect them.

Remember, this is a discussion between offshore types, so this is just my opinion and nothing else. It’s not based on tax law or anything I know that others might not.
Discussing this type of thing is a good thing as it helps others understand the bigger picture. If you have a view contrary to mine feel free to post it!

[Richard Browne]

I am based in Australia and if you are classed as a resident for tax purposes then yes you have to file a return, they have made it alot more difficult here to become a non-resident for tax…unless you leave the country permanently.
Alot of guys are living in Asia but not necessarily residents of that country or paying tax there as they are just there on visitors visa as we know..I really do think the inland revenue would have a very hard catching up with guys who live in the middle of no where in Thailand with no fixed address, ie their own house, or one of the 7000 islands in the Philippines…They may get nabbed if they went back to the UK or Australia, but I think thats the only way..I know myself for one living in Australia as a tax paying resident, for the last 10 years, but a British citizen, if I ever received a letter from the HMRC demanding a tax return for the last 10 years it would go straight in the bin…

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