HMRC Reporting Requirements
Following the introduction of the Onshore Intermediaries Legislation (also known as the False Self-Employment Legislation), HMRC has introduced a new reporting requirement for agencies which came into effect from April 6th 2015.
The detail is below, but in short, from April 2015:
• Agencies that pay businesses without deducting employment taxes must submit reports to HMRC each quarter about those payments.
• If you work in this way, your agency will probably be asking you for information which they need to make these reports. If you don’t provide it, they may not be able to use your business in the future.
• If your company sub-contracts work itself, then your company may have to make its own report.
We can help with this.
In recent years the government believe there has been an increase in the use of Employment Intermediaries, normally employment agencies but not restricted to them, which facilitate what it deems to be ‘false self-employment’. It considers that this effectively aids the avoidance of employment taxes and as such, has implemented changes to existing legislation and introduced new reporting requirements to tackle this.
The Onshore Intermediaries Legislation, also known as ‘False Self-Employment’ legislation, makes the employment agency that directly contracts with the hirer, liable for any underpaid PAYE and NIC for all self-employed temporary workers in the supply chain, regardless of which intermediary or service provider pays them.
Prior to this change, it was up to HMRC to prove the worker was an employee rather than self-employed. However, since April 2014 it has been the duty of the agency to actively prove self-employment (in particular that the worker is not subject to direction, supervision or control) and unless the agency can provide sufficient evidence (contracts alone are not enough), then the agency is liable for the PAYE and NI due as if the worker had been employed by the agency as a permanent employee.
What changed in 2015?
The second phase of this legislative change commenced in April 15 and is an additional reporting requirement for any intermediary defined as ‘intermediary 1’ in the supply chain, i.e. the intermediary closest to the end hirer.
This intermediary is required to submit a report each quarter to HMRC, detailing any and all payments made, together with the details of the recipient, where PAYE and NIC has not been deducted.
For clarity, in the event any of the following apply, PAYE and NIC should be deducted by the intermediary:
• if the worker is subject to (or to the right of) control, supervision or direction as to the manner in which the duties are carried out;
• if the worker is providing their services personally;
• if the worker is remunerated as a consequence of providing their services;
• if the worker is receiving remuneration not already taxed as employment income.
How does this affect me or my Limited Company?
The government has advised that it does not intend for these changes to apply to Personal Service Companies differently to the way it does currently and as such, IR35 and the managed service company legislation will be the main items to consider.
The changes to the legislation should only affect you directly where you contract to your end client (with no agency in the contractual chain) and are providing subcontractors of any kind to complete the assignment. If this is the case we would recommend you contact us to discuss this in more detail.
If you work through an agency, the agency is deemed 'intermediary 1' and must report to HMRC on the payments they are making to your company, together with the workers personal details.
Because of this, you may be asked by your agency to supply certain information which it needs in order to file its report. There is no legal requirement for you to provide the information to the agency, however, if you do not, it will not be able to comply with the legislation, and so would be unlikely to continue to use your services. Effectively therefore, you are required to provide the information if you wish to continue to work through the agency.
What needs to be reported and by whom
Whilst we believe most of our Limited Company clients are not be directly affected by the reporting requirements to HMRC, it is important to understand in what circumstances you will need to file a report and what needs to be included.
In most circumstances it will be the employment agency that will need to file a report to HMRC.
The following table shows the circumstances when this is required.
The report will need to include:
Whilst we do not expect this to affect you directly, as advised you can expect that your agency will need some information in relation to you and your company so they can file their reports on time.
If you do have any subcontractors through your Limited Company we would recommend that you contact us as soon as possible so we can go over what is required and answer any questions you may have.