I had a long conversation this week with a new member of our Network which related to the firm they had previously worked with. They had been a self-employed agent of that firm and decided to join us after they had been subject to a tax investigation and presented with a considerable tax bill by HMRC relating to their off Payroll Working activities.
There are a number of firms that operate in the finance sector with “agents”. I have to admit I am not a fan of this model as I personally don’t believe it works within the current rules. There are 2 reasons for this:
- Off Payroll Working IR35
Looking initially at authorisation. For an agent to be able to benefit from the authorisation of the firm they have to comply with the PERG definition of an agent. There are several measures that PERG gives:
2.3.7 (1) Control – the degree of control the Principal has over the individual, the guidance suggests the extremes – at one end the individual merely achieving an end result, at the other extreme the individual having every action to achieve the end result controlled by the principal.
2.3.7 (2) Supervision – the degree to which the Principal firm oversees the activity and performance of the individual.
2.3.7 (3) Independence – the degree to which the individual carries the risk and reward of their activity – does the individual provide his own equipment, employ their own staff ? Will they profit from running a financially sound business.
2.3.7 (4) Rewards based on success.
2.3.7 (5) Business name – does the individual deal with their customers under their own name or that of the Principal ?
2.3.7 (6) Multiple Principals – If the individual deals with more than 1 principal.
2.3.7 (7) Natural Person – as stated above where the individual is not a natural person it is highly unlikely that they will qualify as an agent.
Picking up on my concerns here, many agents operate under their own limited company and PERG states it is highly unlikely for them to qualify as an agent if they are a incorporated body. Secondly, if you are the Director of a firm you have a duty to promote the success of that company and act in the best interest of that company. That duty contradicts PERG which states the agent must be carrying on the business for the benefit of the authorised firm with whom they work.
So, as I say I can’t see how a Limited company can operate as the agent of an authorised firm.
Turning to the situation our new network member found themselves in which was Off Payroll Working and IR35 rules. So under PERG rules to qualify as an agent as you can see you are effectively an employee of the firm as they have control over what you do. Under IR35 rules if the firm has control over the worker to the degree specified in PERG they fall within IR35 rules, so must pay Tax and National Insurance out of their fees as if they were an employee of the firm. Obviously this hadn’t been explained to our new network member and when they were subject to a tax inspection by HMRC it came to light and they were required to pay unpaid tax and NI, plus interest for the previous 3 years that they operated as an agent of the previous firm.
In fairness I don’t believe the firm they were operating with had any idea of the implications of IR35, but the impact was significant and a very costly lesson was learnt.
So, as I stated right at the start, I’m not a fan of the “agent” route to market, it is fraught with danger and I don’t understand why firms operate this way when there is a readymade solution with the Principal / Appointed Representative regime that removes any ambiguity and allows independent firms to operate under the authorisation of the Principal and benefit from whichever tax structure their business falls within.
If you are considering becoming an “agent” of a firm operating in the consumer credit industry please take advice so you don’t experience a similarly expensive lesson.
If you have any questions please don’t hesitate to contact our compliance department, you can contact us on 01254 958777.