Are you impacted by the employment intermediary rules and what to do if you are?
The workings of Employment Intermediary Rules
The legislation covering the employment intermediary rules was introduced to track and clamp down on the employees that slip through the tax net by disguising themselves as self-employed when they are actually providing services to the firm. The rules were also aimed at reminding employers of their carelessness towards fulfilling their duties.
Who will be affected by the Employment Intermediary rules?
The employment intermediary rules came into effect on 6th April 2014 and take into consideration:
- The Self-employed contractors who have been paying taxes as a self-employed individual, when in reality they are employed through an intermediary business to do work for a third party
- The businesses serving or acting as intermediaries
How does a business qualify as an intermediary?
A business may be categorized as an intermediary when it arranges and refers to an individual for employment or work for a third party.
A business might be categorized as an intermediary if:
- They are hiring subcontractors or workers without putting them through payroll, to provide services to their customers or clients.
- They make payment to their workers without any deduction for National Insurance Contributions (NIC) and Pay as you earn (PAYE).
Some businesses are intermediaries by default because of the nature of their work, for instance, recruitment agencies and umbrella companies. If you are any of these or working through these consulting a competitive payroll accountant can make understanding the process easier.
When are businesses liable to file an employment intermediary report to HMRC?
A business is required to send an Employment Intermediary report to HMRC, if the following conditions that have been listed down apply, during any quarter of the reporting period.
- The business is working as an agency or an intermediary that provides an individual’s services to a client
- The business has a contract with a client or multiple clients
- The business is providing multiple services because of signing multiple contracts with different clients.
- The business is providing an employee’s or worker’s services in the UK, and if providing abroad, the individual is resident in the UK
- Manage multiple payments for the services that include the payments made to a third party as well
Basically, all of the conditions naturally apply to businesses that are providing workers or employees to fulfil the needs of their customer or client businesses. These conditions may apply to personal service companies, consulting services and hospitality sector as well.
What if the business has not supplied any worker during the reporting period?
A nil report is to be filed before the deadline if your business has not provided workers during a specified time period- quarterly in this case.
What happens when there are a lot of intermediaries which are linked together?
If there are multiple intermediaries linked together in a chain, then the intermediary that is providing workers or individuals to fulfil the services to the client is responsible for filing the report to HMRC, only if PAYE is not being considered
Intermediaries in the chain providing workers to other intermediaries must ensure that they provide all the relevant details of the workers to the intermediary rather than reporting it to HMRC.
To clear any misunderstanding, let us examine it with an example. For instance, a recruitment agency provides 5 workers to a client according to a contract. As the recruitment agency is paying these workers without operating PAYE, the agency has to submit an Employment Intermediary report to HM Revenue & Customs. Our in-house payroll accountants are trained at performing high-level payroll duties according to the most recent legislation.
Other businesses that are not liable to report to HMRC include those who are providing services in the oil and gas industry at sea on the UK continental shelf.
Which workers are excused from being reported?
When the intermediary report is being prepared, make sure to add the details of overseas workers that pay taxes in the UK or the payments made according to the work location of the workers.
There is no need to add details for workers:
- Who don’t have taxes to pay in the UK
- Who are working as regular employees in your firm
- Who have not been assigned to provide services or have not been paid during the reporting period- quarter
- Who are part of the entertainment industry-actors, singers, musicians, photographers, models
- Who work from premises not arranged by the client, for instance, home-except if the nature of the work or service provided to the client requires them to
Personal service companies that provide a single worker to their clients don’t need to file a report with HMRC, whilst if the personal service company provides more than one worker to their clients, without operating PAYE, the company has to file the intermediary report. If you are unsure about how the reporting works and if it applies to you, speaking to a payroll accountant, accounting firm or accountant should help.
What important details need to be kept in mind when filing the report?
Businesses must ensure that they provide the following details when filing the report:
- The personal details of the workers
- Details of the payment
- Details of the work
- Full name, address and postcode of the intermediary
Other things to consider when filing the report:
- The report has to be submitted online, once it is finished
- HMRC’s reporting template must be used whilst filing the report
- You are allowed to send 13 reports at a time.
- The records held by an intermediary must be held, to support the file submitted to HMRC
What about the workers within CIS?
For workers within the Construction Industry Scheme (CIS), specific rules apply when submitting the report to HMRC. If workers within CIS are provided to a client, then their gross pay before deductions, inclusive of VAT, should be reported to HMRC.
There is a deadline for the submission of reports in every reporting period
|5th August||6th April – 5th July|
|5th November||6th July – 5th October|
|5th February||6th October – 5th January|
|5th May||6th January – 5th April|
What happens if the report is submitted after the deadline?
- Penalties are charged on late submissions, penalties depend upon the times the report have been submitted late throughout the 12-month period
|1000||Third and subsequent|
- After 12 months have passed between late reporting, the penalty clock will reset.
- Penalties of up to £600 will be imposed if one fails to report on time continually.
- Right of an appeal lies with the intermediary, in case, incorrect penalties have been imposed.
Clear House Accountants are specialist Accountants in London, who have trained and developed a team of specialist Payroll Accountants with years of experience in order to add value to all reporting and payroll functions of a business. Contact us to learn more.