Voluntary National Insurance and French Social Security: Update

In an update to our article 26 May, we have now received direct confirmation from ENIM that mariners who are resident in France and who are not paying into a mandatory social security scheme will not be considered to be exempt from enrolment into French social security.

This means that voluntary Class 2 NICs paid in the UK will not take away a liability to France.  Only membership of a compulsory EU Treaty or Reciprocal Agreement country’s contribution scheme will be enough.

The 1st July deadline for enforcement of the Decret 2017-307 rolls closer: it is imperative that everyone who is affected is properly prepared.

We would encourage all mariners, employers and vessel owners who have concerns to seek professional advice.

French Social Security and UK Class 2 NICs

Further to the new French social security decree, rumours have circulated that voluntary UK NI Contributions will exempt mariners from the new regulations.

ENIM officials have agreed that where the EU social security regulations or the provisions of a bi-lateral agreement place a contribution liability outside France that takes away any contribution liability in France. That there is a liability outside France is usually evidenced via the issue of an A1 certificate or some other certificate of coverage.

It has been suggested in a number of places that UK domiciled mariners could escape the French liability if they were to pay a voluntary Class 2 contribution in the UK. This would cost them £2.80 a week.

Whilst many UK individuals would be able to pay this voluntary contribution, Article 14.2 of EC Social Security Regulations 883/2004 states that a voluntary contribution can be paid in addition to a mandatory contribution but cannot replace it.

The voluntary contribution can be paid in the UK and so provide a retirement pension in both countries. However, the idea that a UK national can opt to pay voluntary UK, rather than mandatory French contributions is false.

HMRC have repeatedly stated that they will not issue A1 certificates where the contributions being paid to the UK are on a voluntary basis. That being the case it will not be possible to provide to ENIM the proof that contributions are being paid elsewhere. It should also be noted that the Class 2 contribution is abolished from the end of the current tax year. There will then be the possibility of paying a voluntary Class 3 contribution costing around £15 a week. Again, however, an A1 certificate would not be issued.

We would strongly encourage crew, employers and owners to seek professional advice if they are concerned about the effect of these new regulations.

French Social Security – UPDATE

In our most recent article on the changes to French social security legislation, we originally stated that the residency threshold of 6 months would be the relevant criteria – which is what we had been told by our contacts within the French authorities.

ENIM have since changed their position, after consulting with the relevant Ministeries, so now a period of 3 months will be the applicable period.

Our previous article has been amended to reflect this.  We will update on any further changes if they occur.

French Mariner’s Social Security – A Complex Issue

There has been much comment and confusion over recent changes to French Social Security, specifically the Decret 2017-307 of the 9th March 2017.

This piece of legislation was bought in to widen the scope of social security coverage for mariners connected to France. It lead to serious concerns within the marine industry and especially yachting that a large-scale enrolment of seafarers into the French system was imminent, with severe penalties expected for employers, vessel owners and seafarers who did not comply.

The initial factors in assessing liability are:

  1. Are any of your crew French residents?
  2. Does your vessel spend a “significant amount of time” in French waters?
  3. Are the crew already paying social security to an EEA state or one with a reciprocal social security agreement with France?

These criteria themselves gave rise to further questions; what is “a significant amount of time”?  How is French residency to be defined?  What states have relevant reciprocal agreements with France?

Through our own contacts within the French authorities and with input from legal advisors in France and our contacts in the marine industry, we have been able to produce the following answers.

It must be stressed that individual cases will still require careful review – as with all matters involving tax and social security, it is extremely difficult to create a one-size-fits-all flow chart that simply gives one all the answers.

That said, some broad points are outlined below for initial guidance.

The following mariners may be exempt:

  • Mariners aboard vessels flying an EEA or Reciprocal Agreement flag are unaffected (provided they are contributing to the flag state’s approved scheme);
    • This includes French mariners unless they are paid from or otherwise employed by a French entity;
  • Reciprocal Agreements should be consulted carefully, as certain RAs do not provide enough cover, since they may mutually exclude non-citizens;
  • Mariners who do not reside in a “stable, regular manner” in France (i.e. are there <3 months of the year);
  • Mariners who live aboard foreign flagged vessels, even when aboard >6 months;
  • Certain mariners in coastal or interior waters aboard certain classes of vessel.

The following mariners may very likely have to be enrolled in the scheme:

  • Mariners resident >3 months in French territory
  • Mariners on board vessels with no protection from an EEA treaty or bilateral agreement

The information from ENIM brings a lot more clarity to the situation but there still remain areas on which more information is needed. The concept of “living aboard” foreign-flagged vessels still requires some fleshing out, since it may be possible that further guidelines appear about time spent ashore by crew, vessel movements etc. that go on to cover vessels which spend >6 months tied up alongside, going nowhere else.

We continue to work with our clients to assess their fleets and would strongly encourage vessel owners, employers and crew who have concerns to seek professional advice.

First Moves on Social Security Post-Brexit

In a recent announcement the Deutsche Verbindungsstelle Krankenversicherung im Ausland (“DVKA”) have stated that all A1 certificates issued for workers going to the UK will expire before 29 March 2019.  This is the second anniversary of the date on which the UK “triggered” Article 50 to withdraw from the European Union.

This decision from the German authorities appears to assume that the UK will make a withdrawal from the single market.  Broadly speaking “hard Brexit” means that rather than the Swiss or Norwegian model where the UK is not in the EU but maintains membership of the common market, the UK pulls out entirely. 

Since leaving the single market will be necessary if the UK wants to withdraw from the EU’s principle of free movement of labour – a key motivation for the pro-Brexit vote in some quarters – then it seems increasingly likely that this will happen.

What it means in practice for posted workers and their employers is complicated.

Without the single market it is likely social security co-ordination will also end as we know it.  In this particular case, workers posted from Germany to the UK and vice versa could rely on the existing UK-Germany Reciprocal Agreement (though its terms are subtly different to the EU treaty). 

However it is equally possible that this agreement will be re-drafted, or potentially even put aside.

 If the DVKA’s approach is followed by other EU states, this could create further problems – for example, the UK has no Reciprocal Agreements with many current EU states such as Poland.  With no RA to fall back on, either a new one must be drafted – and quickly – or there will be a risk of either a double contribution liability or possibly no contribution liability, for Polish residents on UK flag vessels, of which there are many.

There is also a long-term question as to how transfers of benefits will be affected for UK and EU nationals who have contributed in a state other than their home.

If you employ internationally mobile workers, or are a self-employed worker who goes overseas to work, we strongly advise that you seek support early to make sure that you have the right cover in place.

 

New French Regime for Posted Workers

From 1 April 2017, it has become an offence for an employer who posts a worker to France, where the worker is covered by an A1 certificate (or equivalent), to not be able to produce that certificate for an inspector.

 There is an obligation for employers posting workers to France to inform the local authorities before the worker is posted, giving details of the worker’s salary (which must be translated into Euros if not already in that currency) and submitting other records during the employment..

 They must also appoint a “legal representative” within France to deal with the local authorities (and potentially face the consequences of a failure to comply).

 Penalties are high – €2,000 per worker for breaching any of the above, though it has been noted that being able to prove an A1 has been applied for but not yet issued may be sufficient.

 It is unclear how this legislation will interact with the new French Social Security regulations concerning mariners which come into force on 1 July 2017.  However it will clearly be advisable for anyone entering French territory – or territorial waters – to be clear on their social security coverage.

 Both pieces of legislation, especially as they apply to mariners, are in their early stages with developments to follow.

So What Is Happening to Self-Employed N.I.?

The last fortnight has been an interesting one in financial terms.  First, the release of the Budget which, amongst other measures, included an increase in the rate of Class 4 National Insurance Contributions, the rate applicable to certain of the self-employed.

After a lot of vocal opposition to the increase in Class 4 NIC, there followed a U-turn by the Chancellor, who said that there would be “no increases to [NIC] rates in this Parliament”.

Ignoring the political impact of this, there is an interesting challenge here for the Treasury.

Class 2 NICs – the fixed-rate contribution paid by the self-employed – will still be scrapped from April 2018.  Currently, it is the payment of Class 2 NICs which entitles the self-employed to benefits such as Employment and Support Allowance, Maternity Allowance and most importantly Retirement Pension.

It is envisaged that these benefits will now come via payment of Class 3 and 4 NICs.

The Treasury will of course have to consider how to fund these benefits when, at least for the time between the abolition of Class 2 and the almost inevitable rise in Class 4, there will be a shortfall.

There is also an issue for those living and working abroad – who currently may pay Class 2 NICs on a voluntary basis to keep UK benefits.  Class 2 is a flat-rate contribution of £2.85 per week in 2017/18.  It is envisaged that they will now pay Class 3 contributions – which stand at £14.25 per week in 2017/18, 5 times the rate currently being paid by those making voluntary contributions.  We can expect this rate to rise slightly by 2018/19.

We have not yet seen the legislation that will enact all these changes, so specifics are not clear yet, however the government’s plan is fairly clear.  Nevertheless, as the last two weeks have shown, governments’ plans may be subject to change.

 

 

Contractors, Self-employment and HMRC Spotlight 32

HMRC has been publicising its win in Christianuyi Ltd & Ors – a tax tribunal case focusing on false self-employment and Managed Service Companies. The case is the first major victory HMRC has achieved under the “IR35” legislation and if HMRC’s “Spotlight” article on the subject is anything to go by, will be the first of many such cases.

The judgment from the Tribunal goes into some detail as to definitions of Managed Service Companies, MSC “providers” etc. under the law. The MSC Provider in Christianuyi was Costelloe Business Services Limited, part of a wider group of companies

There are a number of interesting points to be drawn from the judgment, a few of which are:

  1. Apparent flaws in the structure of the MSC scheme offered
  2. The MSC Provider’s handling of the case and dealings with HMRC
  3. Who is now liable for outstanding tax/NI

Flaws in the structure

The key to HMRC’s case was that the appellants were not genuinely self-employed, instead using limited companies to reduce their tax/NI liability (and that of the end users of their work).

The usual tests for self-employment (risk/reward, control and supervision etc.) were relevant here amongst other things.

Many things undermined the assertion of genuine self-employment. Amongst them was the fact the appellants did not truly direct their companies and in some cases do not seem to have understood basic Company law, for example;

  • One appellant stated he did not understand dividends;
  • One appellant “Director” said that he had never attended any Board meetings.

More technically, how the MSC Provider was taking its “professional fees” for running the companies and how salary/dividend payments were made undermined the structure.

MSC Provider’s Response

Reading the latter part of the judgment, it is difficult not to form a poor impression of how the MSC Provider and its Directors responded to HMRC’s investigation of their “clients”.

The Tribunal described one Director as “evasive and lacking credibility” and that he “played with words in an obstructive manner”.

Who is liable?

Currently, the five appellants in Christianuyi together owe over £150,000 in tax and National Insurance for the three tax years under consideration.

HMRC have separately begun proceedings to transfer this debt from the appellants to the MSC Provider.

There is also the potential in the legislation to transfer the debts elsewhere in the contractual chain.

What this means

Limited Company contractors, as well as those who use their services, need to review their position carefully.

There are many legitimately self-employed people who run their own limited company business.   They need to make sure they are not at risk. Self-employed workers who are offered “service companies” should think very carefully before agreeing to be part of such a structure.

It is possible that end users of “failed” structures like this could be exposed to tax/NI costs and they should be aware of this risk.

Finally, though it should go without saying, all parties need to be sure that they can rely on the integrity of their service providers and professional advisors.

Whose Private Driver? The Uber Employment Tribunal.

An Employment Tribunal ruled against the taxi-app firm Uber in what’s being called a landmark case for worker’s rights, the “gig economy” and the concept of self-employment.

The ET – in a verdict which will be appealed by Uber – ruled that Uber drivers were, in fact, employees of the “platform provider” and as such entitled to a number of employment rights in the UK.

Although the case was about employment rights, it will no doubt have an impact from a Tax and National Insurance perspective.

If the drivers are employees, then that will mean PAYE obligations, employer’s NI contributions and no doubt auto-enrolment obligations as well for their employer.

As well as its impact on Uber, there are a few factors here which will be applicable to many industries that are worth bearing in mind.

Substance over form

To quote the ET report, “[Uber’s] general case and the written terms on which they rely do not correspond with the practical reality”[1] 

Uber’s representatives’ case in court appears to have been undermined in part by e-mail correspondence and other records of communication between Uber’s “front-line” staff and the drivers.

The court also made reference to the relative bargaining power of the parties – noting that the drivers, many of whom were not first-language English speakers, would likely have struggled to understand “dense legal documents couched in impenetrable prose”.[2]

Employment test

The standard tests of employment vs self-employment were applied here. They included matters like “on-boarding” of new drivers and whether this was actually recruitment by another name, the enforceability of Uber’s “standards” being a matter of control and other points.

Amongst many points one of particular relevance was invoicing.

Despite ostensibly having invoices from the “driver” to the “rider”, it was clear that in reality, no passenger ever received a follow-up invoice from a taxi driver. Instead, Uber settled all drivers’ “commission” on a weekly basis (taking a percentage of the fare as a “fee” for access to the Uber platform).

Working time

The court – quoting, with a lyrical flourish, Milton’s “they also serve who only stand and wait[3] in precis of their thinking – included as working time those periods where drivers did not have a fare on board but were within their allotted territory and available for hire.

The court ruled out, however, time spent travelling from the driver’s home to that territory as being working time.

What everyone needs to think about

Clearly businesses genuinely using self-employed sub-contractors need to consider a number of different points and many matters form the Uber ET that cannot be covered in this article.

Based on the above, though, we would suggest a few key starting points:

Contracts should reflect reality

If your actual procedures in dealing with sub-contractors significantly differs from your service agreements, that could be a big problem.

Both parties need to understand what they are involved in

There has to be a clear indication from your sub-contractors that they understand your agreements and their status under them.

Be prepared for scrutiny

It could be lethal to a business to have to pay employer’s NI, run PAYE and administer auto-enrolment for workers if it never factored in those costs. As such you need to be very sure that your arrangements are correct and that they stand up to scrutiny.  This case, other high-profile cases such as Christianuyi and HMRC’s declared intent to root out “false self-employment” mean that this now a high-risk area.

If you feel you need advice on employment taxes, national insurance or other aspects of legislative compliance, please don’t hesitate to contact us.

[1] Aslam & Ors v Uber BV & Ors [2016], Paragraph.90

[2]Ibid. para 96

[3] Ibid, Para. 100