Reporting for employment intermediaries

2015-16 saw the introduction of a new reporting regime for employment intermediaries who provide more than one worker’s services, to one or more clients, but who do not operate PAYE on their payments. 2016-17 will see the penalty regime for this policy enacted. The question is - is everybody ready and does everybody know?

In an ongoing bid by the government to tackle false self-employment through agencies 2015 saw the introduction of a new obligation on employment intermediaries. This followed the introduction of new agency legislation in 2014 which placed liability for tax and NICs on the employment intermediary – the agency with the contract with the end client. The exception being where there is no supervision, direction or control (SDC), or the right of SDC. The intermediary that has the contract with the client is responsible for submitting the reports.

Reporting obligations

The obligation introduced a requirement for the employment intermediary to file an electronic return, at least once in every quarter, which contains the details of the agency, the worker and the payment, where the agency believes it has a valid reason for not operating PAYE for an agency worker.

A report must be submitted using the report template via HMRC’s online service if during a reporting period the following conditions all apply:

• You are an agency or intermediary that supplies the services of individuals to a client
• You have a contract with a client or clients
• You provide more than one worker’s services to one or more clients because of your contract with those clients
• You provide the worker’s services in the UK - or if the services are provided overseas, that the person is resident in the UK
• You make one or more payments for the services (including payments to third parties)

These conditions could include situations where you supply both workers and materials or supply different, and/or substitute workers.

You must provide the worker’s details and payment details for workers you have placed with clients and where you haven’t operated PAYE which can include:

• overseas workers, who have to pay tax in the UK
• payments where the worker is working in the UK or working temporarily abroad overseas
• Construction Industry Scheme workers where workers are supplied to an end client - the gross payment before any deductions, including any VAT

Once a report has been submitted, you must continue to submit nil reports until a period of four consecutive nil returns have been submitted.

You don’t have to send HMRC reports if all the following statement are true:

• You are a UK employer
• You supply workers to provide their services to end clients and nobody else is involved
• You operate PAYE when you pay those workers

When making a report the intermediary is required to provide their full name, address with postcode along with the worker’s personal details and details of the engagement and payments made which will include:

• Workers full name, address and postcode
• National Insurance number
• Date of birth and gender

The report will also prompt a reason for why PAYE was not operated. Reasons could include:

• Self employed
• Partnership
• Limited liability partnership
• Limited company including personal services companies
• Non-UK engagement
• Another party operated PAYE on the worker’s payments.

Reporting periods, dates and deadlines

Quarterly reporting dates run from 6 April and are:

A technical specification was produced by HMRC and published in 2015 (last update was in August 2015) for software developers to allow them to develop software for their clients or themselves.

HMRC will allow users to remove a report they have submitted for up to 4 months after a reporting period ends.

Using the example given in the HMRC technical specification for the reporting period 6 April to 5 July, the deadline for uploading and sending a report in order to not receive a penalty is 5 August. The user can upload and send more reports or remove reports until 5 November.

However if you remove all reports after a period’s deadline, when the original deadline has passed, leaving the period without a report, you risk receiving a penalty for a late report, unless:

• You upload and send a new report/s - to replace the report removed
• You send a NIL report
• You tell HMRC you are no longer an intermediary

The Employment Intermediaries Coordination Unit (EICU)

EICU is a specialist unit, set up by HMRC, to help agencies and similar labour supply businesses comply with the PAYE, NIC and tax liability rules. The EICU can be contacted on 03000 555995.

Reporting requirements obligations delivered with a light touch

Looking back and with the benefit of hindsight we can see that 2015-16 was effectively an introduction year that was delivered with a ‘light touch’ approach to penalties. However we are now in 2016-17 and as from period ending 5 July (deadline date 5 August), we will see HMRC start to apply automatic penalties to employment intermediaries who fail to submit a report each quarter, where they should have.

Penalties

5 August 2016 is the deadline for the reporting period 6 April to 5 July 2016. If the report is late or not filed, a penalty will be issued via HMRC computer systems as part of an automatic process.

The amount of the penalty is based on the number of offences in a 12 month period:

• £250 will be charged for the first offence
• £500 for the second offence
• £1,000 for the third and later offences
• To a maximum of £3,000 per quarter

If a report is submitted late, but at least 12 months have passed since the last time a report was late, it will be treated as a first offence.

If a report is submitted that is incorrect, penalties may apply. An incomplete report, for example a report where any information is missing, will count as an incorrect report. Penalties for incorrect reports will be determined manually on a case-by-case basis.

If an incorrect report is replaced before the deadline of the next reporting period without being requested, HMRC will take this into consideration when they decide whether a penalty has to be paid.

Daily penalties

Where there is a continued failure to send reports, or where reports are frequently sent in late, penalties of up to £600 per day that the report is late (more than 30 days), may be charged.

There is a right of appeal and details will be included within the penalty notice. All appeals and cancellations will be handled by the HMRC EICU.

Is everyone aware of the reporting obligations… and penalties?

HMRC informs us that it has worked hard over the last 12 months in a bid to help and support businesses who may be employment intermediaries to be more compliant with the new legislation through a mix of articles in trade press, webinars, face-to-face meetings, direct Nudge techniques (aka letters) as well as updates in the Employer Bulletin and Agent Updates.

However when you discuss the subject of the reporting obligations of employment intermediaries with clients, or colleagues who you think will or should know – they know nothing – or more importantly don’t consider themselves to be affected by this obligation.

The EICU is, in addition to being a technical support unit, also tasked with helping agencies and intermediaries understand their obligations.

HMRC, in their 2015 discussion paper  laid out the five principles of current thinking in regards to how penalties fit in to a modern tax system, however as we look to the introduction of the penalty framework for intermediaries legislation I can’t help but think that the age old adage “ignorance is no defence” will continue to apply.