The following information provides a brief guide to the legislation:
HMRC believed that wholescale tax avoidance was being carried out via employment intermediaries who provided services to workers on the basis they were Self Employed. HMRC established that many of these workers were classified incorrectly and they should therefore have had PAYE Income Tax and National Insurance Contributions (NICs) deducted at source from their gross incomes.
Although the main target of the legislation was the construction sector, it also applies to all other UK industry sectors.
The new legislation places a burden on recruitment agencies to verify that workers are legitimately Self Employed before making any gross payments. The agency must now embark on a due diligence exercise to assess that:
- it can be shown that the manner of the provision of the services provided by the worker are not subject to the supervision, direction or control of anyone, or
- the remuneration payable to the worker is (already) treated as employment income under some other provision of tax law.
In other words, if a contractor is working on a paid assignment and has someone else who supervises, directs or controls their day-to-day activities, then the recruitment agency must make statutory deductions for Income Tax & NICs.
Reporting to HMRC
In April 2015 HMRC implemented a second phase to the legislation and now require recruitment agencies to liaise with them on a quarterly basis to report on all workers who they do not directly pay themselves.
This includes individuals who work via Umbrella companies, those who are registered as Self Employed and contractors who own/operate Personal Service Companies.
The agency will be required to provide HMRC with the following data:
- Worker name and National Insurance number
- Worker Date of Birth and Gender
- Worker Address and Postcode
- Details of how engaged ( Self Employed / Umbrella/PSC)
- Start date and end date of engagement
- The fees, currency and whether VAT is include
- Name, address and Companies House registration number of the company paid by the agency for the workers services
If the worker is engaged on a Self Employed or PSC basis, the following additional information must also be provided:
- Unique Taxpayer Reference (where self-employed or a member of a partnership)
- Amount paid for the workers services inclusive of VAT
- Has income tax been deducted from these payments
Reports must be filed quarterly according to a schedule set out by HMRC. If the reports are late, incomplete or incorrect, the recruitment agency can be fined £250 for the first offence, £500 for the second offence and £1,000 for the third and subsequent offences.
It is now more important than ever before for recruitment agencies to understand exactly how their contractors provide their services while based on assignment. Umbrella, PSC & Self Employed models are still very prudent options for many contractors but it is now essential for all parties to carry out a certain level of due diligence to ensure compliance with the legislation.
For more information and advice simply request a call back or contact one of our advisors on 0161 703 2549. Alternatively please email us on firstname.lastname@example.org.
Disclaimer: The above information does not constitute professional advice, only general information.