SG Accounting

The UK's leading contractor site. 200,000 average monthly visitors.

HMRC places limited company contractors outside new False Self-Employment Legislation

Limited company contractors are definitely outside the scope of the proposed False Self-Employment legislation proposals, confirmed law firm Lawspeed to recruiters at a seminar on the potential impact of the new rules.

According to ContractorCalculator CEO Dave Chaplin, who attended the event, Lawspeed’s Ben Grover explained that limited company contractors, or those using personal service companies (PSCs), are not the intended target of HMRC. Indeed, a deliberate tax technicality introduced by HMRC takes them outside of the scope.

“Grover explained that limited company contractors are outside the scope because they are paid a salary and dividends via their limited company,” explains Chaplin. “Lawspeed’s analysis shows that because dividends are not ‘remuneration’ and because the contractor is not paid directly by the agency, all of the conditions in the proposed legislation designed to catch the workers being targeted for tax avoidance are not met, so the rules cannot apply to PSCs.”

However, Lawspeed also confirmed that IR35 has not been affected in any way and will continue to apply to limited company contractors as before.

According to Lawspeed, the False Self-Employment Legislation proposals have arisen due to the Talentcore upper tier tax tribunal case. This found over 100 self-employed consultants working on duty-free concessions not to be providing personal service, so HMRC lost the case to tax their income as employment income.

Chaplin continues: “Lawspeed explained that the new legislation is designed to target companies offering mass-marketed schemes, where an employed workforce has been converted into a self-employed sole trader workforce overnight specifically to avoid 13.8% employers National Insurance Contributions and holiday payments.”

These schemes are common in construction and are spreading into other sectors, which is why the government has taken anti-avoidance action by proposing the new legislation.

For those workers within the scope of the proposed legislation, Lawspeed’s analysis is not good news. Their status depends on being able to demonstrate a lack of supervision, direction and control. Grover commented that: “It will be almost impossible to demonstrate that some sort of supervision, direction and control does not apply.”

ContractorCalculator will be publishing further analysis of Lawspeed’s findings and their implications for limited company and umbrella company contractors.

Published: 23 January 2014

© 2022 All rights reserved. Reproduction in whole or in part without permission is prohibited. Please see our copyright notice.