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False Self-Employment Legislation

False Self-Employment Contents:

The false self-employment legislation proposed at the end of 2013 could force all contractors, including limited company contractors, into paying tax and National Insurance Contributions (NICs) via the Pay As You Earn (PAYE) scheme.

It incorporates a new test, laid out in the Finance Bill 2014. If it becomes law, the test will apply to all contractors who are on agency contracts from 6 April 2014.

The test presumes that contractors are employees for the purposes of income tax and NICs, unless it can be proved by the agency that they are not “under the control, direction and supervision” of the client as to the manner in which they provide their services.

The likely impact is that all agencies and organisations in the supply chain will deduct income tax and NICs at source via Pay As You Earn (PAYE) from all limited company and umbrella company contractors.

If enacted, the test will sit alongside existing tests of employment and IR35. In its current form a contractor could be outside IR35 but fail the false self employment test, so still pay tax like an employee, as if they were actually caught by IR35.

The legislation is undergoing a consultation which ends on 4 February 2014.

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False Self-Employment legislation - explained
Most contractors should remain outside of the False Self-Employment legislation, which is mainly targeting self-employed sole traders.

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