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Onshore Employment Intermediaries reporting rules: contractor obligations

Contractors are obliged to submit personal information to employment intermediaries, such as agencies or other contractors they are subcontracting for, under the Employment Intermediaries reporting requirements legislation introduced in April 2015.

HMRC’s original guidance stated that limited company contractors using personal service companies (PSCs) would not be covered by the legislation if the absence of supervision, direction and control could be proved.

However, HMRC updated its guidance during March 2015, and the latest employment intermediaries legislation reporting requirements guidance makes it quite clear that contractors using PSCs are within scope, if working via an intermediary, and are required to submit personal information.

HMRC’s guidance also confirms that contractors who subcontract to other contractors and freelancers are classed as an intermediary, and so must operate the legislation. This requires submitting regular reports to HMRC. Failure to comply can result in steep fines.

What is an employment intermediary?

According to HMRC, the definition of an employment intermediary is as follows:

“An intermediary is any person who makes arrangements for an individual to work for a third party or be paid for work done for a third party. An employment intermediary is also commonly referred to as an agency.”

This means that any limited company contractor working via a recruitment agency must provide personal data to that agency. Contractors working direct for the client do not have to provide personal data.

Umbrella company contractors are unaffected by the rules because their umbrella company operates Pay As You Earn (PAYE) on their fees. The employment intermediaries legislation only affects those workers who are being paid gross by the agency and are not operating PAYE, such as limited company contractors, partnerships and self-employed sole traders.

PSCs that subcontract are within scope

The definition of an employment intermediary is so broad that it also includes PSCs. Specifically, the rules say that one person limited company contractors contracting direct with the client don’t have to submit reports to HMRC.

However, HMRC says that: “If the worker is supplied through an intermediary they will be included in the return of the intermediary that has the contract with the end client.”

Furthermore: “If a personal service company supplies more than one worker, including any subcontracted workers, it will be acting as an intermediary and will have to send reports for each reporting period.”

Contractor data required by the employment intermediates reporting rules

Contractors working via an intermediary and being paid gross should expect their agency to ask them for the following personal information:

  • Name
  • Address and postcode
  • National Insurance Number, or the contractors gender and date of birth can be provided if the NI number is not known
  • Unique taxpayer reference (UTR), if self-employed or in a partnership.

Contractors can of course refuse to provide the information, as in a normal business-to-business arrangement personal data about directors is not normally exchanged. But as the agency is legally required to supply it to HMRC and faces steep fines for non-compliance, it is likely that contractors who refuse to cooperate will simply not win any work.

When contractors are classed as an employment intermediary

Contractors classed as an intermediary and who are subcontracting work to other contractors have to gather personal data from these workers and report to HMRC on a quarterly basis.

HMRC has provided employment intermediaries reporting templates in a number of different formats that contractors who are subcontracting can use. The templates require the following information:

  • The subcontractor’s full name, date of birth, gender, NI number and address
  • The reason why PAYE was not operated, for example the subcontractor is self-employed, in a partnership or limited company
  • The start and end dates of the engagements
  • The fee, currency and whether VAT is included
  • The party paid by the intermediary, which if a limited company contractor is subcontracting to another limited company contractor, would be the subcontractor’s limited company details (including company number).

HMRC also offers an online upload service so that the templates can be automatically uploaded into HMRC’s systems.

The reports have to be filed quarterly according to a schedule set out by HMRC. If the reports are late, incomplete or incorrect, the contractor who is subcontractor work out can be fined £250 for the first offence, £500 for the second offence and £1,000 for the third and subsequent offences.

Even if the engagement was only for an hour’s work by a freelancer, if PAYE is not operated then a report must be sent to HMRC and records kept for three years after the engagement.

Contractors who are subcontracting and then have an agency in the chain between them and the client do not have to report on the workers. It is the intermediary that is closest to the client that has an obligation to do the reporting.

Published: Thursday, 16 April 2015

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