Insights

Starting from April 2015, new reporting rules have come into force which will affect employment intermediaries or agencies that do not operate PAYE for the workers or contractors that they place with their clients. This is already a very complex area and any business providing workers to third parties e.g. employment agencies or umbrella companies, will need to comply with the changes or face financial penalties.

Other than the specific exceptions set out below, there is now a requirement to provide a quarterly report to HMRC if the worker supplied is under the direct supervision, control or direction of the end client. If an intermediary wished to argue that this wasn’t the case (and therefore omit the details of that worker from the report) evidence is required to prove that the worker isn’t under the control of the end user (in any capacity) and to support the omission from the report. This information must be kept for three years.

What is an employment intermediary?

In this context, an intermediary is officially defined as an agency which:

• Has a contract with a client for a specific time period;
• Provides services for multiple workers to the client as part of the contractual terms;
• Provides a worker’s services in the UK, or, if services are provided overseas, the worker is typically resident in the UK for tax purposes;
• Makes multiple payments for the services.

It’s important to understand the change because the new rules broaden the existing definition of an employment agency as outlined in the Employment Agencies Act 1973 and a greater number of businesses, that have traditionally not met the original definition, will be required to comply.

Requirement to submit a quarterly report

The new legislation requires the intermediary to submit a report to HMRC every three months, detailing all workers supplied to clients, together with payments made and their tax reference information (both personal and corporate if they operate via a limited company). Details of workers supplied and payments made to them are required only when the intermediary does not operate PAYE on the payments. The first report needs to be submitted, online, by 5^th August 2015, to cover the reporting period between 6^th April and 5^th July 2015. HMRC has provided a template showing the way information should be presented – click here to see a copy.

Are there any exemptions?

• If workers supplied provide their services at sea in the oil and gas industry wholly on the UK continental shelf, they are exempt from reporting;
• There are reduced reporting requirements for an intermediary where payments have already been included as part of a PAYE RTI submission by another organization;
• One person limited companies, or personal service companies (PSC) that supply a client with only one worker, do not have to send reports to HMRC directly. In these contexts, if the worker is supplied via an intermediary, the worker will be included in intermediary’s return because they are the entity contracted to supply the end client;
• If a PSC supplies multiple workers or subcontracts assignments to other workers, then it will be acting as an intermediary (even if this ultimately is to another intermediary who then supplies the end client) and will have to submit reports for each reporting period.

No reminders will be issued

It’s important to comply with these changes because penalties will be applied to those regarded as intermediaries who are either late to file their reports or who file incorrect information. Penalties will start at £250 and increase according to a sliding scale, up to a maximum of £1000. HMRC has issued a warning that they will not be issuing reminders or requests for the reports - the onus will fall on the intermediary to be up to date with the new reporting requirements and to be fully compliant.

It is likely that these new reporting requirements will have a big impact on a wide range of employment businesses. Although they are most likely to affect agencies supplying short term contractors and temporary staff, they are equally relevant for agencies providing highly paid interim workers. Many of the latter will be operating through a limited company which HMRC would perceive to be contravening IR35 requirements.

Whilst IR35 and employment status are notoriously grey areas for HMRC to police, the provision of this new reporting information will make it much easier for HMRC to identify candidates who are more likely to yield a successful result in the event of any challenge.

If you would like more information about this change and your obligations, please contact Anne Eager by emailing ae@rjp.co.uk.