Readers may recall that I wrote a Blog on 6 September calling for changes in the Externally Provided Worker (EPW) rules. In fact, I have been calling for changes in these rules for some time (see the article published in Tax Adviser). I won’t rehearse the arguments in full in this post, suffice it to say that the rules do not work where the individual worker operates through a personal services company (psc) or where a group uses a group purchasing company to source external workers from an agency.

I was delighted, then, when the Government announced in June that it acknowledged (at last) that there were problems and that legislation would be introduced to rectify the problem.

On Tuesday (6 December) that legislation was published in draft.  I am pleased to say that the proposed change is simplicity in itself, certainly much more straightforward than my suggested solution! The change will mean that, instead of the worker being obliged to provide his services to the claimant under the terms of a contract between him and the staff provider, that contract can be between him and anyone other than the claimant.

The amendment to the definition of an EPW will mean that a worker operating through a psc will still be capable of being an EPW.  Similarly, a worker provided through an agency (whether or not he was an employee of the agency and whether or not he operated through a psc) to a group procurement company and then on to the R&D company would also qualify.

Unfortunately, I believe that there is an error in the proposed change to the legislation that defines the amount of the qualifying expenditure in situations where the claimant and the staff provider are connected. At the moment, (subject to other conditions) this is the lower of:

  • the payment made to the staff provider; and
  • either the relevant staff costs (if the workers are employees of the staff provider) or the amounts paid to the worker under or in consequence of “the contract mentioned in section 1128(7)”.
The words underlined refer back to the contract between (currently) the worker and the staff provider. Remember, under the proposed amendment, this contract will become one between the worker and anyone other than the claimant. Unfortunately, at the moment it is also proposed that the underlined words will in future read “a contract between the worker and the staff provider”.  So this brings us straight back to the problem we are trying to solve!
I have flagged my concern to HMRC and they have promised to look at it. So, watch this space.