So your self-employment contract runs for twenty-eight pages? That doesn’t make it legitimate!

Ian Anfield examines the latest attempts to outwit the reporting requirements of the Onshore Employment Intermediaries Provisions (OEI) – and explains why they are destined to fail

The Onshore Employment Intermediaries Provisions introduced a supervision, direction and control test (SDC) that proved to be a sufficiently high hurdle for employment agencies to stop using CIS, and for a number of CIS payroll companies to exit the market.

However a gang of intermediaries have decided to ignore OEI for as long as possible.  They call themselves ‘commercial contractors’ and hide behind artificial contractual arrangements that are supposed to make them look like construction companies rather than employment intermediaries.  I can safely say their days are numbered.

As Hudson Contract clients are well aware, we chose the complicated path of full compliance with the tough new regulations, applying the SDC test to 30,000 self-employed construction operatives, and moving any who failed to PAYE.

But others are less diligent.

The latest – and most bizarre – OEI ‘solution’ comes in the form of a sham framework agreement. In all, twenty-eight pages of waffle about how the payroll company provides ‘expert outsourced services’ without a word about what these services actually are.   

The so-called framework document consists of a lot of words, but lacks any relevant legal content.   It looks nothing like the framework agreements I worked under as a project manager for Alfred McAlpine before joining Hudson Contract, and anyone with contractual or legal experience will agree the document is worthless.

So why go to all this effort?

Well, the one-off cost of paying someone to produce twenty-eight pages of chip wrapper is much cheaper than applying the SDC test to every engagement carried out by every self-employed worker you supply or engage.  And if the framework approach worked, it would avoid the imposition of PAYE.  It would be far more convenient than turning away non-compliant and agency business.

But the problem is that the contract achieves nothing.  It has no legal stature and will land those who use it in hot water with HMRC.

OEI and therefore SDC bites when:

1. An individual personally provides services – the worker
2. There is a contract between a client to whom services are provided – the end user – and someone other than the worker – an intermediary
3. As a consequence, or under the contract, services are provided to the client and the worker is paid
4. The manner in which the services were provided was subject to SDC

No matter which way you dress it up, a business that chooses to sit in the contracting chain between a self-employed worker and an end user is an employment intermediary and must apply the SDC test.  By contrast, the SDC test does not apply to genuine end users who provide a composite of labour, plant and materials, taking on management, programme and other genuine contractual risks.

So is anyone naïve enough to think that commercial contractors or these new framework agreements actually change anything? 

Apparently so.  The contracts I have seen fail to describe the relationship between the client and the intermediary.  In that respect alone, they are a sham, and offer none of the normal legal protections when one entity enters into contract with another.

HMRC know who the payroll intermediaries are, and it does not matter how many pieces of paper they hide behind. They will face penalties for failing to report under OEI, and my prediction is that many will fold, taking with them a pot of money from the operatives, their clients and the taxman.

If and when this happens HMRC could – and should - go after those who entered into a sham contract because that was the easiest or ‘cheapest’ thing to do.