Why clients and agents are now vital for expenses

Even as much evidence as your umbrella can single-handedly carry to help determine your ‘SDC’ status as a contractor isn’t going to wash with HMRC, if your agency and client hasn’t contributed to that evidence, writes Marc Scott, a director at Liberty Bishop.

Before we delve into why this is the case for contractors who want to succeed in declaring themselves outside ‘Supervision, Direction or Control,’ and therefore eligible for T&S expenses, a refresher is necessary.

‘Double blow’

The taxman published guidance for those affected by the T&S legislation (entitled Employment Intermediaries: personal service, supervision, direction or control) and it appears to be a blow for any payroll provider, worker, or agency that hoped the SDC test would be relatively easy to pass via a straightforward “self-certification” process.

Indeed, the guidance stipulates that HM Revenue & Customs will not “consider signed waivers and generic statements that the manner in which the worker personally provides the services is not subject to (or to a right of) SDC as satisfactory evidence.”

The guidance then goes on to represent a double blow to those who thought that, to shake off SDC with a signed waiver, there would only need to be dialogue between the worker and the payroll provider. The proof of this? Again the HMRC guidance, which states: “Where it is considered that the legislation doesn’t apply because the test is not met and HMRC are involved in an enquiry, we’ll test evidence by examining relevant documents and gathering facts from all parties involved, which include but are not limited to the workers, agency, client(s), managers etc.”

‘All parties’

So based on both extracts from the tax authority, it’s not only clear that an overly simplistic 'due diligence' process that does little more than get the worker to ‘self-certify’ that they lack SDC will not stand up, but also that HMRC's approach will be one of "gathering facts from all parties involved." It’s the latter three words that suggest to us that for a worker to be successfully treated as lacking SDC, the evidence to support such a claim will need to have been submitted by “all parties” in the contractual chain.

It appears, therefore, that clients and agencies will not be able to distance themselves from the SDC issue, and they cannot expect the worker and the employment intermediary to successfully establish a lack of SDC without them. Of course, agencies and clients are not obliged to get involved in SDC debates if they don't want to, but in practice they would need to have been involved for a ‘lack of SDC claim’ to be successful and survive any challenge from HMRC.

‘Includes but isn’t limited to’

In explaining what a genuine ‘due diligence’ process should look like, HMRC does not set out a rigid framework or stipulate the exact types of evidence that should be gathered. Note however, HMRC does say to “look at documentary evidence which will include but is not limited to contracts between the worker and the agency, contacts between clients and the agency, operational guidance, adverts and such”

And to underline the point that all the evidence in the world is no good if it only comes from one source, “gather facts from enquiries with persons involved in the arrangements, which include but aren’t limited to the workers, clients and the agency/intermediary,” HMRC says.

‘Play a more active role’

It is therefore most apparent that the Revenue’s intention is that establishing a genuine lack of SDC is supposed to be a concerted effort on the part of all parties in the contractual chain, and potentially other parties not directly linked to the contractual chain in a linear fashion. In short, being outside SDC from April 6^th 2016 is not something that can be established in an isolated manner. Your agency and client should be on board and potentially others too if you plan on claiming T&S expenses because to reiterate; all parties in the contractual chain are now required to play a more active role in instances where a lack of SDC is being declared, assuming those parties want that declaration to succeed and survive any investigatory challenge.

Editor’s Note: Related Reading –

Contractors’ Questions: Am I Supervised, Directed or Controlled?

SNP presses Osborne for contractor tax review

Contractors’ Questions: Who’s liable if I claim expenses but am SDC?