Onshore employment intermediaries legislation: HMRC’s best kept secret?

    Have you considered whether your client 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 powers 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.

    HMRC’s view is that there has been a significant rise in the use of intermediaries within the labour market, which they perceive is leading to a reduction in HMRC receipts of employment taxes, coupled with the loss of legal employment rights for workers due to the creation of ‘false’ self-employment.

    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. This should be of particular concern to those affected by the legislation as failure to file the necessary reports can, as from 2016/17, lead to HMRC charging the following penalties for late or incorrect reports in a rolling 12 month period:
    • £250 first offence;
    • £500 second offence; and
    • £1000 third and later offences.

    So, as accountants, you need to ask your clients the following questions:
    1. Do they use off-payroll workers to fulfil customer contracts?
    2. Is the worker’s service in the UK (or is the worker resident in the UK if the service is provided overseas)?
    3. Do they pay these workers without deducting PAYE/NIC?

    If the answer to 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, though HMRC will accept reports 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 no workers have been supplied during a particular period, the business must still file a ‘nil report’ by the deadline date.

    It is important to understand that this legislation applies not only to those businesses typically seen as obvious intermediaries such as umbrella companies and agencies, but has a much broader application and can potentially encompass many more, perhaps unsuspecting, businesses.

    This legislation creates a further burden for businesses, and provides HMRC with yet more in-year data and information regarding off-payroll (self-employed) workers. What has surprised us in the two years since this legislation was enacted, is that there appears to have been little compliance activity undertaken in this area by HMRC. 

    Based on conversations that we have had with agents and HMRC, it seems clear that this lack of activity on HMRC’s part will not continue for very much longer. As 2016/17 is the first year that HMRC will charge the intermediary penalties, we believe that there will be an increase in activity in this area in the coming months. As such, businesses will need to be aware of their obligations, ideally before HMRC comes calling.

    For further information or assistance in determining whether your clients are affected by the onshore intermediaries legislation, please contact Nigel Nordone and Jacqueline Mann in our tax investigations team on 0345 223 2727.