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Experts warn against gross contractor pay

Accountancy experts say that any agency that pays their contractors gross could end up in some very hot water with the taxman at the end of the day.

Thanks to the newest set of employment laws that went into effect just this past week, any agency can be called on the carpet by Her Majesty’s Revenue & Customs for facilitating false self-employment. In order to not get caught out inadvertently, agencies are urged to immediately review their arrangements – or to pay the price.

The issue here is when a contractor partners directly with a recruitment agency exposes that recruitment agency to PAYE payment liability under these new rules. If an agency doesn’t check that their contractors aren’t being paid gross these new rules apply – and the consequences aren’t pretty in the least.

To make it worse, HMRC isn’t offering any leniency or even any exceptions to the new rule. Unless you want to end up having to deal with incurring the wrath of the tax authority, you had better make sure you’re not risking exposure. Now of course most contractors (and agencies for that matter) think these new rules are complete and utter bollocks, but unfortunately for the freelancing community they don’t have much cachet when it comes to getting these regulations passed. All it has to do is show up in the Budget and chancellor George Osborne gets his wish, regardless of whether or not it has a deleterious effect on contract workers.

On the one hand, stamping out tax avoidance is an important goal and I can understand the Government’s desire to close loopholes and ensure that the Treasury is getting every last penny it needs. On the other hand it seems like freelancers and contract workers have been getting the short end of the stick for years now, especially in the days following the economic downturn. I don’t know what sin British contractors have committed besides being the backbone of the economic recovery effort but apparently the community as a whole has attracted the wrong kind of attention from legislators. It’s a shame, but I don’t see any end to these tender ministrations any time soon. Well, you know what they say: no good deed ever goes unpunished.

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