The Government is cracking down on situations in which workers are treated as self-employed for tax purposes, and hence pay low amounts of NICs, but from the outside they appear to act as employees. The following changes in the tax law are proposed to block the use of ‘self-employed’ workers working through LLPs or who are hired-out through employment agencies.
All individual members of LLPs are currently taxed as self-employed persons, even if they receive a regular ‘salary’. This is the default position of the law and nothing is being ‘fiddled’ to put workers in this position. However, HMRC believe this rule is being abused.
From 6 April 2014 salaried members of LLPs will be treated as employees of the LLP if all of the following conditions are met:
- the member works for LLP and at least 80% of the pay he receives from the LLP is ‘disguised salary’;
- where the member has contributed any capital to the LLP, that capital amounts to less than 25% of the member’s ‘disguised salary’ for the year; and
- the member is not involved significantly in the management of the LLP.
The Government has not yet defined the term ‘disguised salary’. If you have salaried members in your LLP we need to talk about these tax changes.
From 6 April 2014 if a self-employed worker supplied by an agency personally carries out the work, or is involved in the provision of the services, the payment from the engager to the worker will have to be taxed under PAYE with class 1 NICs deducted. Any apparent right of substitution in the worker’s contract will not prevent PAYE and NICs being due at the employed rates.
If you have any doubts about the contracts you are using either as a worker or an employer, our tax experts can help check the tax implications for you.