Do you consider whether your clients would be classed by HMRC as an employment intermediary?
The answer to this question is extremely important following the legislative changes in The Income Tax (Pay As You Earn) (Amendment No. 2) Regulations 2015 as HMRC now has the power to obtain information from certain intermediaries relating to the workers they supply where PAYE has not been operated (so called Onshore Employment Intermediaries). The powers affect:
- Self-employed contractors engaged via ‘intermediaries’ and who currently pay taxes as a self-employed person, and
- The ‘intermediary’ businesses themselves.
The legislation was introduced as HMRC were concerned that there had been a significant rise in the use of intermediaries within the labour market, which they perceive is leading to a reduction in employment taxes, coupled with the loss of legal employment rights for workers due to the creation of ‘false’ self-employment.
It is important to understand that the legislation defines an intermediary as:
- A person or business who makes arrangements for someone to work for a third person, or
- A person or business who supplies workers to work for an end client or another employment intermediary, and the client then pays the person or business or someone connected to the person or business for the worker’s services. The end client is who the worker does the work for.
Whilst this legislation has been in place since 2015, its existence does not appear to have been widely publicised either within or outside of HMRC. Intermediaries affected by the legislation (for 2016/17 onwards) may be liable to penalties for late or incorrect reports in a rolling 12 month period:
- £250 first offence
- £500 second offence
- £1000 third and later offences.
We would recommend that you ask your clients the following questions:
- Do they use off-payroll workers to fulfil customer contracts?
- Is the worker’s service in the UK (or is the worker resident in the UK if the service is provided overseas)?
- Do they pay these workers without deducting PAYE/NIC?
If the answer to all of these questions is yes, then HMRC may deem your client to be an intermediary and as such they will need to submit online reports to HMRC.
The legislation requires the intermediary to supply information to HMRC by way of quarterly online reports, although reports can be made on a more frequent basis if this suits the intermediary’s operation.
Care is needed once it is established that a business falls within the definition as quarterly reporting is required. Even where the intermediary hasn’t supplied workers during a particular period, the business must still file a ‘nil report’ by the deadline date, to avoid the penalties detailed above.
It is important to note that this legislation applies not only to those businesses typically seen as intermediaries such as umbrella companies and agencies, but has a much broader application and can potentially encompass many more, perhaps unsuspecting, businesses.
The onshore intermediaries’ legislation creates a further burden for businesses, and provides HMRC with yet more in-year data and information regarding off-payroll (self-employed) workers.
We understand that HMRC will be gearing up in the coming months to police onshore intermediaries and pursue the new penalties for late or incorrect reports in 2016/17. To ensure that businesses are compliant, we recommend that advisers undertake a health check of their clients to see whether they could be caught by the legislation, and where appropriate, that the correct returns have been filed.
We anticipate that HMRC will vigorously pursue businesses that are not compliant and seek to recover the maximum penalties due. The HMRC approach nowadays for intermediaries is simple, you are either compliant or not compliant and any business crossing the line will be fined to deter other businesses and make compliance a priority.
For further information or assistance in determining whether your clients are affected by the Onshore Intermediaries Legislation, please contact Nigel Nordone and Jacqueline Mann on 0345 223 2727.