The government expects to raise up to £400m a year with the introduction of new legislation which takes effect in April, to prevent employment intermediaries from being able to use contrived contracts to disguise the employment of workers so as to avoid paying national insurance contributions (NIC).
Some self-employed workers supplied by intermediaries based in the UK will be treated for tax and NIC purposes as employees from April 2014. Accordingly, payments to these workers will be subject to employer NIC and the withholding of employee NIC.
The moves to legislate to prevent this abuse were announced in the Autumn Statement by chancellor George Osborne as part of the largest package of measures to date and follow announcements in Budget 2013 that the government would continue to gather evidence about the avoidance of employment taxes to inform its policy decisions.
Osborne said government would clamp down on the growing use of intermediaries disguising employment as false self employment, depriving workforces of basic employment rights such as the right to the minim wage in a bid to avoid national insurance.
The government will consult on strengthening existing legislation to ensure the correct amount of tax and NICs are paid where the worker is, in effect, employed, with effect from April 2014. (Finance Bill 2014).
Sean Drury, leader of PwC's employment taxes practice, said the chancellor's statements about tackling abusive structures that disguise an individual's true employment status are to be welcomed.
'It is important the detail doesn't discourage employment intermediaries that are used for real commercial and employment engagement purposes - such as employers meeting the talent and mobility needs of their workforce or where individuals have multiple employment arrangements and have chosen to base themselves, their companies and their wealth creation in the UK.
'We hope as the proposals find their way into statute that we do not limit the UK's attractiveness as a place to work and be based, but still deal with the most abusive structures,' said Drury.