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UK – Wrongly classified agency workers facing tax hike

11 February 2014

Her Majesty’s Revenue and Customs (HMRC) is changing the tax status of thousands of agency staff from self-employed to employee, in an attempt to close what it feels is a tax-loophole, according to The Telegraph.

HMRC estimates it will collect an extra £520 million next year and a staggering £2 billion over a five-year period as a result of changing the tax status of thousands of agency staff. Most of the money will come from employers through National Insurance Contributions (NIC), but tax specialists say some agency staff may be hit by a cut in wages, as well as a bigger tax bill.

HMRC argues that some workers are being falsely registered as self-employed and predicts that the biggest impact will be in the construction industry, where the status of 200,000 workers has already been changed.

Most agency workers are treated as employees and taxed through PAYE (Pay-As-You-Earn). From April, HMRC will extend the net to cover all temporary staff, which will result in them being subject to NIC at the employee rate rather than the lower self-employed level.

According to The Telegraph, the tax and job status of agency workers have been a long-running point of contention for HMRC, who have claimed for years that they have been ‘ripped off’ by employers and temporary workers that have sheltered behind the self-employed label.  

HMRC insists that the change is not being implemented to raise more tax. A spokesman said the updated rules: “Target those setting up mass-marketed artificial arrangements to present workers as being self-employed.”

The rules are intended to ensure that agency staff paid the correct amount of tax and National Insurance, safeguarding their entitlement to benefits.

HMRC added that with the vast majority of agency workers are on the correct rating: “It is unfair that some employers were undercutting employers and agencies who abide by the rules. [The new rules will] ensure a level playing field and fairness for all.”

Staffing Industry Analysts also reported on the potential impact of new offshore and onshore intermediary legislation in yesterday’s news following a seminar by law firm, Osborne Clarke.


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