HM Revenue & Customs (HMRC) continues to strive to reduce the number of workers not subject to PAYE. It has added new reporting requirements for businesses that it considers to be ‘employment intermediaries’. Care is now required since the definition catches many recruitment agencies that may not regard themselves as traditional intermediaries.
From 6 April 2015, employment intermediaries are subject to a significant new reporting regime. This applies to any business that supplies workers who personally provide services to a client.
Under the new regime, UK intermediaries must return reports to HMRC containing details of all workers they place with clients if PAYE is not operated on the workers’ payments. Such reports must be filed on a quarterly basis, with the first report due on 5 August 2015. There are automatic penalties for not sending a report or for sending a report after the deadline (ranging between £250 and £1,000, depending on the number of failures in a 12-month period).
Background The new reporting requirement is one of a number of measures aimed at combatting the use of employment intermediaries to facilitate false self-employment and thereby avoid employment taxes.
Who is affected? Under the new rules, an employment intermediary must send a report to HMRC if at any time in a reporting period it:
- Is an agency
- Has a contract with a client
- Provides more than one worker’s services to a client because of its contract with that client (and such services are not provided exclusively on the UK continental shelf)
- Makes one or more payments for the services (including to third parties) without operating PAYE
Where there is a chain of intermediaries, the obligation to file the report rests with the UK intermediary closest to the end client. That intermediary must obtain the information to be reported to HMRC from intermediaries further down the contractual chain as necessary. The difficulty here is that an employment intermediary may not always be certain of exactly where it sits in the supply chain.
The new reporting regime has broad application and generally includes employment intermediaries that engage individual workers through a personal service company (PSC). Although such intermediaries are rarely required to operate PAYE with regard to payments for services provided by individual workers (assuming the individual workers are paid exclusively through their PSCs), they are still subject to the reporting regime if the above conditions are met. By contrast, a PSC will only be required to file a report if it supplies the services of more than one individual or if it subcontracts to another PSC.
Reporting periods and information to be provided Reports must be filed on a quarterly basis. The first reporting period runs from 6 April to 5 July, with subsequent return periods starting on 6 July, 6 October and 6 January respectively. Reports are due one month from the end of the reporting period (i.e. by 5 August for the first reporting period).
Reports must be filed using HMRC’s report template and must include the following information:
- The intermediary’s full name, address and postcode
- Each worker’s personal details (including full name, address and postcode, National Insurance number or (if a National Insurance number is not available) date of birth and gender)
- Engagement and payment details, including the reason why PAYE has not been operated, the worker’s unique taxpayer reference (if self-employed or a member of a partnership), and the start and end dates (if there is one) of the work with the client
Overall, while the new filing obligations are intended to be reasonably straightforward, there are a number of areas of difficulty, particularly:
- It may be difficult for an intermediary to know with certainty its place in a contractual chain involving more than one intermediary.
- Without a contractual right to the information, it may be exceptionally difficult to obtain all the required information where there is no direct relationship between the relevant intermediary and the individual worker.
To avoid legal issues such as data protection rules, the intermediary in a supply chain that is closest to the end client should secure the contractual right to be supplied with the requisite information from intermediaries further down the chain (e.g. a PSC).