National Insurance Contributions Bill

Written evidence submitted by the Recruitment & Employment Confederation (NI 06)

1. We support the National Insurance Contributions (NICs) Bill, but are concerned over the TAAR provision.

1.1. A similar targeted anti-avoidance rule (TAAR) for income tax was recently added to ITEPA (Income Tax (Earnings and Pensions) Act) and we previously expressed concerns over these changes. These concerns are as follows.

2. It is unclear who has the responsibility to repay NICs when the TAAR invalidates an arrangement.

2.1. The wording of the TAAR in the NICs Bill is unclear and different to that adopted for the TAAR in ITEPA. No reason for this difference has been offered.

2.2. Our primary concern is that the wording used in the NICs Bill could be interpreted as confining the obligation to repay employer NICs (secondary Class 1 NICs) to the intermediary deemed to have employed the worker for tax purposes. Depending on the labour supply chain, this could be either a recruitment agency or an umbrella.

2.3. This appears to go against what we understood to be the Government’s intention, which was to pursue those who set up, manage and promote tax avoidance, which may or may not be employment intermediaries. In REC members’ experience, the advocates and drivers of ‘false self-employment’ and tax minimisation can be the end-user employers, promoters of different schemes or workers.

2.4. Accordingly we believe the TAAR should be revised to mirror the TAAR in ITEPA. This would mean there was no requirement for a ‘third party’ to reduce their own tax liability or benefit a worker to be liable to repay NICs. It is also highly inappropriate that clients are not liable to repay NICs since they will often insist on them to reduce costs.

2.5. Further, the TAAR currently assigns liability to repay employee NICs (primary Class 1 NICs) to the worker. Whilst this is generally appropriate as workers receive significant financial advantages if paid via CIS rather than PAYE, it is appropriate to provide a defence for workers where they are coerced or misled into participating in a NICs minimisation scheme.

3. We have concerns over how the TAAR will be applied and seek additional guidance and a delay in commencement.

3.1. Despite repeated requests from REC and our members for greater guidance, it is still unclear how the TAAR will be interpreted and applied by HMRC. This is a concern as several avoidance models that might be invalidated by the TAAR have already spread widely; and, the TAAR will retrospectively apply from 6 April 2014.

3.2. Industry has responded very quickly to the recent changes, and members have already encountered a number of schemes attempting to circumvent the requirement for workers under supervision, direction and control to be employees and paid under PAYE. This includes:

· The Elective Deduction Model (EDM);

· Use of Personal Services Companies (PSCs);

· Use of contractual provisions to exclude a right of supervision, direction or control; and

· Simply ignoring the rules entirely, as HMRC’s compliance efforts rely on self-reporting.

3.3. HMRC have provided some high level guidance on how the TAAR will be applied, but this is nowhere near enough guidance available for us to adequately advise our members or evaluate the impact of the TAAR. Put simply, it is genuinely unclear what current practices will be invalidated by the TAAR or where the line is between legitimate tax minimisation and illegal tax avoidance.

3.4. We need more guidance from HMRC and time for industry to adjust to ensure its arrangements are compliant once the guidance is provided. Specifically, we believe it is appropriate for :

· The NICs TAAR (and the ITEPA TAAR) to be delayed until 6 April 2015; and for the Committee to request HMRC provide better guidance on how the TAAR will operate so businesses can determine whether their current arrangements are compliant.

4. The Bill rightly sets out to reduce tax avoidance and we would welcome further guidance on other tax loopholes

4.1. The Government’s efforts to reduce tax avoidance through false self-employment must be matched by efforts to reduce other avenues of tax avoidance. Key amongst these for REC members is the abuse of travel and subsistence payments which are not affected by a TAAR and can result in significantly greater reductions in tax and NI contributions than the CIS scheme ever did.

4.2. There is a growing skills shortage in construction as the sector recovers from the downturn. This is being exacerbated by the rising costs of training and accreditation for new workers, and a lack of apprenticeships and upskilling since the recession. Meanwhile, the requirement for workers to be paid under PAYE rather than CIS has significantly reduced construction workers’ take-home pay. The combination of a pay cut and a skills shortage has made it very difficult for agencies to put workers onto PAYE, since there is such a high demand they can always find a less reputable intermediary to pay them under CIS.

October 2014

Prepared 22nd October 2014