New reporting rules turn many of us into HMRC informants or targets
To help him find avoiders, the taxman wants agencies as ‘employment intermediaries’ to send him information about contractors and the umbrella companies they work with, writes Lisa Keeble of Contractor Umbrella.
Who’s got to report and who’ll be reported
So agencies will be required, on a quarterly basis, to provide details to HM Revenue & Customs about themselves and any workers they have been involved in the supply of to end-clients, where the workers have been treated as self- employed for income tax and NI purposes and paid outside of PAYE.
But according to HMRC’s revised reporting requirements, it means agencies (as ‘intermediaries’) will, in the same quarterly record on workers they provide to the end-user, also report the details of those who operate via an external PAYE umbrella company. The net payments to workers won’t have to be disclosed to HMRC by the agency (as that information is provided by the umbrella company via their RTI submissions).
Agencies are going to drown in data (and you’ll have to oblige)
The 'long and short of it' is that agencies are soon going to be required to obtain reams of information from candidates and report it to the Revenue, whether those workers are not on PAYE; are employed through someone else’s PAYE or engaged through a PSC.
The cherry on the top of this very widely targeted data grab by the Revenue is that the new quarterly returns, in which the information on the workers will be fed, will be backed up by a penalty regime. This will be put in place to ensure incorrect returns are punished and, for HMRC, monetised.
These new reporting requirements on intermediaries will add to the already significant burden on recruitment agencies to gather data from their candidates. These candidates – contractors for example – might not be overly thrilled at having to disclose information they have never had to disclose before, quite apart from whether they might deem it to be sensitive or private.
Concessions – what won’t have to be reported
But it could have been a lot worse. Indeed, although the admin burden of agencies is going to increase, as will their demands on contractors to hand over certain details, HMRC has made some concessions as a result of its consultation, which ran (ever so briefly) last year. These concessions were gained thanks to pressure from industry groups, notably APSCo, who were concerned that the balance between managing tax avoidance and allowing contractors’ agents to work effectively had got out of kilter.
So despite what HMRC initially proposed, no longer will the intermediary (such as an agency) who is bound by the reporting requirements have to ask workers for their worker title, hours worked, passport number, and National Identity Card Number, as HMRC says it can do without these four pieces of information. And where a NINO is provided, DOB and gender won’t have to be reported either. Furthermore, there is no legal obligation for the agency to report the payment – just the worker identity details, the company name, address and registration number, and the start/end dates of the assignment.
The impact on workers is that despite a few step backs by the taxman, they are likely to hear, see and feel their recruitment agents trying to get to grips with what will be an onerous change in the amount of data collection and reporting that must be undertaken in order for them, as ‘intermediaries,’ to satisfy HMRC’s rules. Workers will, it seems, have to play a big part in helping their agency comply with the law. And by ‘workers’, I mean sole traders, umbrella contractors and, also according to the revised reporting requirements, some PSC contractors too.
The position of PSC Contractors
It might be best to leave it to lawyers to decipher the Revenue-speak about PSC contractors, but the following is the department’s attempt to “provide clarity” to such limited company workers.
In the HMRC document -- Record Keeping and Reporting Requirements for Employment Intermediaries – Summary of Responses, it states: “Where a PSC has only one individual providing services to an end client the PSC will not be a specified intermediary and will therefore have no filing responsibilities. A PSC however will appear on a different intermediary’s return where their services have been provided by that intermediary to an end client. If the PSC subcontracts to another PSC or where more than one worker of the PSC provides services to an end client they will be caught by the legislation as a specified employment intermediary and would need to file a return.”
The position of PSCs in relation to the reporting requirements for intermediaries has been somewhat clarified by this HMRC document where, under section 5 outlining ‘Worker engagement details where intermediary didn't operate PAYE,’ it gives the option of “D” a “Limited Company.” And the statutory instrument covering all these requirements confirms PSCs to be reportable at 84G (c)(v).
A ‘level playing field’ is the goal
What’s clear is that although PSC contractors are largely not in the crosshairs of the false self-employment legislation, they’re certainly not exempt from its regulations, or these incoming reporting requirements. This may surprise recruiters especially as the government initially said that PSCs weren’t the target. It’ll also disappoint agents because, by HMRC not exempting such workers, it’s another ‘worker’ on their list who they’ll need to report on.
But the message from the taxman is clear (even if the processes he’s outlining in these reporting requirements are not). He will do whatever it takes to stop tax avoidance within the market, in pursuit of “a level playing field,” as he said in his response to the consultation (see chapter 2.14).
Unfortunately, this new responsibility is likely to put significant pressure on all but the largest recruitment agencies in terms of additional administration costs. Furthermore, the ‘due diligence’ required to establish what a compliant umbrella is has increased significantly in recent months, as have the costs. That’s why recruiters can be heard saying that they feel like they are being forced into a position where they are doing the taxman’s job for him. Agencies understandably feel that these new reporting requirements merely continue the trend of asking employment businesses to take on the responsibilities of HMRC to collect revenue and enforce tax rules.
We’re all in (HMRC’s net together)
We doubt that contractors will be any more thrilled than agents or umbrellas at the need for them to provide extra data so that their partner providers can abide by the law. The only silver lining here is that it could have been lot worse if HMRC hadn’t conceded on some of the more intrusive information requirements. Plus, there’s relief in the industry that the ‘final list’ of what will need reporting (see 2.28 of HMRC’s consultation response) has emerged well before the deadline of the first quarterly report in August 2015. Another positive is that guidance from the Revenue on the reporting requirements has been published.
Of course once upon time, you might think that just sole traders would need to read it. After all, it’s actually them who are the primary targets of these onshore intermediaries rules, not contractors, agencies, umbrellas, other intermediaries or end-users, but no doubt all these parties will be reading the guidance too.
Editor's Note: Andy Hallett, a partner at recruitment giant SThree contributed to this article.
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