Contractor clients and agencies have gained a greater insight to help them determine the existence of supervision, direction or control (SDC), following HMRC’s publication of revisions to its guidance for employment intermediaries.
This follows the implementation of new travel and subsistence (T&S) regulations for umbrella contractors and personal service company (PSC) contractors deemed to be inside IR35 on 6 April 2016.
Within its guidance, HMRC refers to the manner of determining whether or not SDC applies as ‘the SDC test’. According to the guidance, no legal definition of the SDC test exists, and as such, HMRC notes that it isn’t prescriptive on what evidence either itself or the Courts would find persuasive in determining where the right to SDC applies.
Reinforcing the subjective nature of SDC, HMRC’s guidance notes: “it will depend on individual arrangements”.
HMRC provides very little in the way of a definition of the SDC test, making it difficult for contractors and clients to apply, although its guidance is as follows:
“The SDC test is:
- a test in isolation – there might be many indicators that suggest the SDC test is met, none of the other employment status indicators, for example, financial risk, the right to personal service etc. are considered when applying the SDC test, and
- not a question of extent, the SDC test is either met or it isn’t”
HMRC’s guidance confirms that the T&S legislation presumes the SDC test is met unless it can be proven otherwise. The employment intermediary, or the agency, is responsible for determining whether SDC applies.
As many agencies will simply assume the contractor is under SDC to avoid risk, it means that the contractor is essentially responsible for proving that the right to SDC does not apply to them, and for providing this evidence to their recruiter.
Contractors need to beware that HMRC doesn’t consider signed waivers and generic statements that the manner in which the contractor carries out their work is not subject to the right of SDC to be sufficient.
Instead, contractors who want to continue claiming T&S expenses tax relief are advised to pay close attention to factors such the job specification provided and their actual working arrangement. Details concerning how the contractor must complete the work may indicate that the right to SDC exists.
For employment intermediaries and contractor clients checking if the legislation applies, HMRC highlights certain pieces of information that will be needed. These include details about the contract terms and the actual working arrangements, such as how the work is monitored, who the contractor reports to and who the contractor works with.
HMRC highlights that it holds the right to recover Pay As You Earn (PAYE) income tax and National Insurance Contributions (NICs) from the employment intermediary – typically an employment business - if it considers the evidence showing SDC isn’t met to be unsatisfactory.
New tool launched to help SDC Compliance
ContractorCalculator and Qdos have built an online SDCTesting tool that enables umbrella companies to quickly and efficiently process up to thousands of workers to determine their SDC status. It also offers underwritten insurance for workers who pass the test and for whom umbrellas decide to process expenses.
If you are a contractor, please ask your umbrella company to get in touch and we would be happy to discuss them joining our current Beta program. Or if you are an umbrella company and want a cost effective method of processing SDC compliance for all your workers then please get in touch.