Healthcare employment agency K5K has been ordered to pay a £260,991.21 tax and National Insurance (NI) bill after its appeal regarding Section 44 legislation was dismissed at a First Tier Tribunal hearing.
Section 44 was introduced in 2014 in order to stop employment agencies from supplying sole traders whose employment status reflected employment, rather than self-employment.
Any business that breaks the legislation and is identified as creating ‘false self-employment’ is liable for unpaid tax and NI contributions that should have been paid under an employment relationship, in addition to potential interest and penalties issued by HM Revenue and Customs (HMRC).
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K5K, which was set up by Kulvir Singh Kooner after he was made redundant as a pharmaceutical analyst in 2011, provides healthcare workers to clients as self-employed workers.
However, it was found that K5K had breached Section 44 following an HMRC investigation. Kooner unsuccessfully appealed the result at the First Tier Tribunal between February and July 2021.
Seb Maley, chief executive officer at tax insurance provider Qdos, said: “Where the IR35 legislation has a broad set of criteria, Section 44 has a far narrower scope. If one of supervision, direction or control applies to the worker, in the eyes of HMRC, a sole trader must be taxed as an employee. It means the financial risk for agencies is just as severe as IR35 but the rules are arguably easier to fall foul of.
“This case, in particular, shows that HMRC is scrutinising agencies’ compliance in this area, and a significant win could well give the tax office the confidence to ramp up its activity. Along with this, the K5K case highlights the importance of ensuring contracts are carefully drafted and that a sole trader’s working practices align to that contract, are documented and regularly assessed.”
K5K has been contacted for comment.