SDC legislation and what it means for your agency
Introduced in April 2016, SDC (supervision, direction or control) legislation seeks to clarify self-employed status. Whether an individual is subject to SDC or not determines whether some expenses can be claimed. A thorough understanding of SDC is vital for agencies, as this impacts the contractors they work with.
SDC legislation explained
Changes for construction contractors came into force in 2014, which aimed to establish their status with regards to supervision direction or control. If a contractor was deemed to be subject to SDC, then they could no longer be a part of the governments Construction Industry Scheme (CIS).
Further changes were subsequently introduced in 2016 when SDC legislation came into force, which meant that contractors across all industries could no longer claim back travel and subsistence expenses if subject to SDC.
Agencies are required to establish a contractor’s SDC status, as to the manner in which they provide their services, this is commonly known as the SDC test.
The SDC test
Those who fail the SDC test i.e. if those who can be told HOW to do their work, are not be eligible to work on a self-employed basis, they also are not able to claim home to work mileage or subsistence. Other expenses can be claimed 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 are able to claim home to work mileage and subsistence. 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 individuals on this low rate due the limited access to expenses they would have.
What are the options?
For workers subject to SDC, our Umbrella service is likely to provide the ideal solution, 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.
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 contractors are not subject to SDC then existing processes remain exactly the same.
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.
We have put together the following agency charter to clarify our position, demonstrate our commitment to our agency partners and reassure you that you can trust us to keep your commercially sensitive information confidential.
- We 100% respect each agency’s right to consider the test in their own way
- We will continue to engage workers via CIS or Umbrella with Travel & Subsistence but only when all parties agree on the lack of SDC
- We will answer all contractor questions factually and honestly at all times including which options are available to them with Exchequer Solutions.
- We will never tell our contractors of the standard SDC position of individual agencies
- We will never tell our agency clients what our other clients are doing.
- We do not and will not operate EDM, Hybrid, Pay day by pay day or any other such schemes.