You may not know if your business qualifies as an employment intermediary, and we couldn’t blame you.
But it’s extremely important you know if you are affected by the legislation that was included in the Finance Bill 2014 concerning false self-employment (so-called Onshore Employment Intermediaries). Besides bringing new tax and National Insurance considerations for both businesses and contractors, this law means that ‘intermediary’ businesses will now have to make quarterly reports to HMRC in certain circumstances, and contractors (including those with Personal Service Companies) are also affected by its requirements.
This legislation came into effect on 6th April 2014 and it affects:
- Self-employed contractors who are employed via ‘intermediaries’ and who currently pay taxes as a self-employed person, and
- The ‘intermediary’ businesses themselves.
The Government introduced the legislation to clamp down on the use of false self-employment models where workers and employers avoid tax they should be paying and where the employer also avoids their other employment responsibilities.
When is a business classed as an intermediary
The legislation says that an intermediary is:
- A person who makes arrangements for an individual to work for a third person, or
- A person who makes arrangements with an individual to be remunerated for work done for a third person.
So, businesses need to ask:
- Do you use off-payroll workers to fulfil customer contracts?
- Do their payments get made without deductions for PAYE/NIC?
If the answer is yes, you may be an intermediary.
Naturally, employment agencies, umbrella companies and some payroll companies will be intermediaries. But it is a very broad definition and actually includes any business where:
- The business supplies labour to any other business (even if this is not the main service provided), where the individual personally provides a service to a client, and
- There is a contract with the client and another person who is not the worker (.e.g. the ‘intermediary’), and
- The client pays for the service, and
- The worker’s service is in the UK (or the worker is resident in the UK if the service is provided overseas).
So that could include consulting services companies, facilities management, the events industry, the hospitality sector, the care sector, the audio-visual Industry – basically anyone who is hiring out workers to another business. And it does include personal service companies who subcontract and / or supply more than one worker to a client.
It doesn’t include businesses that only introduce contractors to clients, or those that supply workers to other intermediaries. It doesn’t include businesses that provide services at sea in the oil or gas industry on the UK continental shelf. It doesn’t include individuals who are supplied to an end-user where the end-user has little real interest in or control over the identify of th workers or make-up of the workforce.
What does this mean for intermediary businesses and contractors?
From 6 April 2014, contractors in this situation who are found not to be genuinely self-employed (and do not currently have tax and National Insurance deducted by the employer) need to have tax and employee National Insurance Contributions (NICs) deducted at the source from their pay by the intermediary. The intermediary will also have a new liability to pay employer NICs.
However, where an intermediary can prove that the contractors they place with a client are genuinely self-employed (because the worker is not under the direction, supervision or control of anyone, although they do provide a personal service to the client), they will not have to deduct tax and NIC’s. But the intermediary will have to submit quarterly reports to HMRC from April 2015 (the first due in August 2015).
This new legislation will not affect Agency Workers and will only have a limited effect on contractors with their own Personal Service Limited Company (PSC’s) – see full details here of the indicators that the legislation will, or will not, apply to different types of workers.
Establishing whether you are an intermediary or not is crucial – it is becoming clear that many affected businesses are unaware of the new Act and it’s reporting requirements and many businesses may be unaware that they are actually intermediaries.
Similarly contractors may not be aware that they work for intermediaries and therefore the business should be reporting on their employment with them. Contractors have no legal requirement to provide the required information, but if they do not then the intermediary will not be able to comply with the legislation (so contractors may find they do not get any further work from them). Intermediaries may make this a contractual requirement for contractors to provide this information.
What are the new reporting requirements?
Intermediaries who place workers at another employer’s business, for who they are not deducting income tax and NIC, will be required to hold detailed information about those contractors including the name and address, details of all payments made and why NIC was not deducted. They will be required to report this information quarterly to the HMRC. Details of reporting requirements and how to do it are here. The first report is due on 5th August 2015 (for the first April-July quarter of 2015).
If an intermediary business does not report, or reports late, there are automatic penalties. HMRC will not issue reminders or requests for reports. You must also keep the records for 3 years after the end of the tax year.
If you are an Employer and need ongoing professional help with any staff/freelance issues, or a Contractor/Freelancer/Employee with a complicated employment related problem, then talk to Lesley at The HR Kiosk – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.
Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.