On 12 July 2016 HMRC published the results of research undertaken to understand the implications for employers and engagers if they are given responsibility for operating the intermediaries legislation.  The intermediaries legislation combats tax avoidance by individuals who would normally be taxed as employees but supply their services through an intermediary such as a Personal Service Company (PSC). This ensures that there is no loss to the Exchequer of tax or national insurance contributions that would otherwise be due from the individual.

Currently the responsibility for deciding whether the rules apply in a particular case lies with the intermediary. However as the current legislation is not working as well as it should HMRC published a consultation document in July 2015 on possible changes to the legislation. One option was to make employers and engagers responsible for deciding if the intermediaries legislation applies in a particular case.

The research explored the awareness and understanding of the intermediaries legislation by businesses and sought insights into the behaviors, processes and burdens of employers when hiring workers through companies rather than directly. The research was also undertaken to assess the likely impact on employers if the responsibility for operating the intermediaries rules was placed on them rather than the intermediary. Finally the research looked at likely incentives for non-compliance and barriers to compliance.

The research report concludes that the potential changes to the intermediaries legislation are not supported by all businesses. Many businesses use temporary staff and they consider these staff to be important for the success of their business because of the flexibility of the arrangments and the skills they bring with them. The option to shift responsibility for applying the intermediaries legislation to the employer was seen as undermining their businesses and their relationship with the self-employed workers. The changes were also seen as potentially costly to the businesses and imposing a burden on them. Even businesses that rarely used Personal Service Companies considered this to be the case.

The businesses also saw that there could be negative effects for the individuals working through PSCs. The businesses would have to err on the side of caution in deciding whether to apply the intermediaries legislation, to avoid negative repercussions for the business. This would mean that they were less likely to use PSCs or would want to place the individuals into the payroll of the business. This would remove the flexibility of the arrangements.

Businesses however are concerned to comply with any relevant legislation and therefore expressed their need or information from HMRC and clarity on the legislation to allow them to adapt to changes. Further information on changes could help to resolve the uncertainty of businesses about losing the flexibility of the arrangements.