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Taxation Readers’ forum: IR35 responsibilities

/ 7 April 2020

David Whiscombe

Can a company insist that PAYE is operated on workers? Writing for Taxation magazine’s Readers’ Forum, BKL tax consultant David Whiscombe responds to this query.

‘We act for a small limited company client that has gangs of labour who are all under the construction industry scheme (CIS) regime. Their client is a large multinational which, with the new IR35 rules coming online, is advising businesses working for it that, from 6 April 2020, it will no longer engage with limited companies or personal service companies off-payroll, whether directly or through agencies or intermediaries. Instead, if they are to continue providing services to it, all contingent workers will have to register and be paid under PAYE through an approved employment agency. If this requirement is not followed, the multinational may serve notice to terminate the engagement in accordance with the provisions in their contract.

The multinational has advised agencies providing workers that a letter to this effect has been sent to workers and that the agency should expect them to be in touch.

The agencies have also been asked to confirm their PAYE arrangements and have been told that any future workers will only be considered if they are paid under PAYE.

As advisers, we are contemplating pointing out that our client’s company is not controlled by the workers provided and therefore is unaffected by the legislation, which we think is the right thing to do. However, given the strict tone of their statement we would not be happy to provide any details of the arrangements that our client does have with its individual workers as this may be a breach of confidentiality. Is our understanding of the position correct?’ Query 19,534 – Confucius.

David Whiscombe’s reply: The multinational can, within the law, decide how it will do business

‘I am assuming that the client is not providing the services of the labour gangs to the multinational such that the multinational has control over the gangs – in other words, I am assuming that these are not ‘agency workers’. Rather, I am assuming that the client is providing services to the multinational as a subcontractor and that, in order to provide itself with the manpower or womanpower to deliver those services, the client chooses to engage with the labour gangs (none of whom has shares in the client) rather than to take on employees under PAYE.

On that assumption, I agree that IR35 is not in point and the new ‘off-payroll’ rules (when they eventually come in from 6 April 2021) will not require the multinational to provide a ‘status determination statement’ for the client’s workers.

Regardless of that, it is in principle possible for the multinational to decide that it will not in future do business with any subcontractor unless all of the subcontractor’s workers are ‘on the books’. In other words, it will not do business with subcontractors such as the client in this case who engage self-employed labour gangs under the CIS rules. That might be thought unreasonable, but it is the prerogative of the multinational to make up its own internal rules and policies (within the limits of the law) as to who it will or will not do business with. If this is really what is intended, the client will have to decide whether to comply with the multinational’s requirements or lose the work. However, it would be worth confirming what the multinational really means. It seems more likely that it means that it will not in future enter into any engagement that would require it to provide a status determination statement; it would certainly not be alone in taking that position.

If that is the case, the client would apparently simply need to point out that its arrangements are not such as require the multinational to provide such a statement; it is to be hoped that it would then be left to continue them unaltered.’

The article is also available on the Taxation website.

For more information, please get in touch with your usual BKL contact or use our enquiry form.

David Whiscombe

Consultant

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