HMRC new finance bill will affect construction workers 11th December 2013

Temporary workers and employment agencies are being targeted by the taxman under new rules set out in the draft Finance Bill, which could have serious implications for the construction and off-shore oil and gas sectors.

The new legislation is likely to affect around 200,000 construction workers and 50,000 other self-employed people who are employed via employment agencies, who from 6 April 2014, will be subject to tax and employee National Insurance contributions (NICs) deducted at source. The employing agency will also have a completely new liability for employer NICs. The measures are designed to raise the tax and NICs take by around £520m next year.

Temporary workers make up around 5% of the workforce, and the businesses who supply them sometimes employ temps directly, or sometimes use agency contracts or sub-contractors. The tax, NICs and employment law position is different in each case, and end-users have often been going for the cheapest options, which often involve reduced tax costs and less employment red tape.

Those temporary workers who are employed under an umbrella employment contract, which covers every separate assignment that they undertake, are always subject to PAYE and NICs deductions. Workers on agency contracts are not generally employed by anyone, but the agency is obliged to operate PAYE and make NI deductions from their wages as if they were employees.

However, with effect from April 2014 the Government is taking action against those temporary workers who are sub-contractors and supplied by an employment agency.

The PAYE and NI rules currently accept that a self-employed worker finding work through an agency is still self-employed and should be taxed as such. But from 6 April 2014, if the worker personally carries out the work, or is involved in the provision of the services, the payment will have to be payrolled, so the worker will have tax and employee NICs deducted at source, and the agency will become liable for employer NICs. The worker’s own NI cost will therefore be 3% higher than the 9% paid as a self-employed person, and the employing agency has a completely new liability at 13.8%.

Some employment intermediaries have also been operating from outside the UK to avoid UK employer NICs, and they are to pay an extra £85m per annum.

In the oil and gas sector, employment of North Sea rig workers by a non-UK entity has legitimately been the normal way of doing things for many years, and those employers with no UK place of business have not been subject to employer NI liabilities. This is to change, with a new liability imposed on the intermediary which ultimately provides the worker to a UK entity.

Mark Collins, Baker Tilly’s National Head of the Employer Consulting Group said: "These new rules are likely to affect hundreds of thousands of temps and other self-employed workers using employment agencies and will have a disproportionate effect on the construction sector. It will be interesting to see how hard-pressed construction businesses react to these extra costs."