The SDC legislation and what it all means for you
Changes came into force for the recruitment industry on 6th April 2016 relating to Supervision, Direction or Control or SDC as it is commonly referred to. You may have spoken to us, your agency or your colleagues since the changes and heard various pieces of information, please see the below clarification of the industry changes and what Exchequer Solutions can do to help you.
New legislation came into force in April 2016 which effectively mirrors the ‘CIS legislation’ that came into force in April 2014, by also introducing the Supervision, Direction or Control test for any workers seeking to claim expenses and where an intermediary is in the chain i.e. a recruitment agency or Umbrella company.
Agencies will now have to establish whether workers are subject to Supervision, Direction or Control as to the manner in which they provide their services. This will be commonly known as the SDC test. This test is to determine whether a worker is an independent contractor who can be told what to do, but then determines HOW they do the work based on their skills, qualifications and experience or whether someone else tells the individual what to do and also HOW to do it.
The SDC test
If an individual is expected to know HOW to do the work and if no-one has the right to tell them HOW to do it then they will pass the SDC test. If an individual is told HOW to do the work, or if someone has the right to tell them HOW to do it then they will fail the SDC test.
This is a test that ultimately has to be decided by the agency, who will then inform the worker and us of the options they will allow. We are seeing many agencies happy to agree that skilled workers are not subject to SDC, and many more than we saw in 2014. This is potentially because in 2014 the Umbrella option was there in place of CIS and therefore it was easier to ask workers to go Umbrella than it was to assess SDC. Many agencies and contracting companies have introduced questionnaires to help them decide on status.
We can help workers and agencies by discussing am individuals SDC position with both parties. We have already agreed many broad principles with our agency partners meaning that individuals working with one of our preferred agencies will find the process quick and staright forward.
What do the changes mean?
If those who fail the SDC test i.e. if those who can be told HOW to do their work, then they will not be eligible to work on a self-employed basis, they also won’t be able to claim home to work mileage or subsistence. Other expenses will remain claimable and all of the other benefits of working for Exchequer remain i.e. one employer, ease of tax administration rather than asking for P45s and P46s every three weeks, employment status and access to advances if the timesheet is late etc.
For those who pass the SDC test i.e. those who decide for themselves HOW to do their work, then they remain able to claim home to work mileage and subsistence. Some may also find that you are allowed to work on a self-employed basis as many agencies are now assessing their workforce. At Exchequer Solutions we also provide ‘CIS insurance’ to agencies that are keen to allow CIS but want some financial reassurance in this area.
If the rate being paid by the agency for a worker’s services is currently £10 per hour or less then the worker is likely to be subject to SDC however this legislation is unlikely to affect these individuals as access to expenses is extremely limited due to the hourly rate.
What are the options?
For workers who are subject to SDC then we can look after those contractors on ‘Umbrella’ with limited or no expenses and as stated above all other benefits will remain the same.
Some contractors may wish to consider having their own Limited Company as this operates on slightly different rules to the above test and puts matters into the individual’s hands. This is likely to be a popular option in the future for agencies and contractors alike and our Accountancy division can help. Our accountancy division is a Chartered Accountancy firm giving reassurance to contractors.
We are happy to give advice to contractors wishing to discuss this option and we have a range of competitively priced packages available including the provision of Public Liability Insurance.
Broadly speaking, we would only recommend a PSC to contractors on a minimum of £12 per hour and would urge extreme caution to anyone who feels ‘shoehorned’ into a model which forces them to become a company director or to have their own company that someone else ‘manages’ for them.
If those not subject to SDC then existing processes remain exactly the same. It is also probable that we will see an increase in agencies allowing CIS as it is exactly the same test that determines if a worker can be CIS or not.
Finally, having a Limited Company may be the best option for some individuals, where this is the case status doesn’t have to be declared by the agency for each assignment.
We advise against recommending any ‘model’ that you don’t understand or that sounds too good to be true to your workers.
If you speak to individuals who think having a limited company is the best route for them we’d recommend they use an accountancy firm that is Chartered to ensure the best advice and service.
Talk to us! We’re happy to help and to explain what the changes mean for you. We can discuss the range of options we can offer your workers from PAYE through to setting up their own Limited Company.
If you wish to discuss anything in more detail, please contact your Account Manager or call us on 01244 500195