People talking

Do you use consultants and do you need to file quarterly returns?

Or are you an employment intermediary?

People talking

'Intermediaries' or agencies supplying workers to an end user, are required to submit quarterly returns to HMRC where payments have not been subject to PAYE and National Insurance Contributions (NICs). HMRC has the power to obtain information under The Income Tax (Pay As You Earn) (Amendment No. 2) Regulations 2015 rules, which impact:

  • self-employed contractors engaged via 'intermediaries' and who currently pay taxes as a self-employed person'
  • the 'intermediary' businesses themselves.

There are statutory penalties of up to £1,000 for late reports, with possible tax-based penalties for incomplete or incorrect returns.

The answers to the questions in the headline have taken on a greater importance recently as HMRC has been surprised that it has not received as many returns as it expected, following the change in rules back in April 2015. What is clear is that there has been a significant rise in intermediaries and 'false' self-employment situations, but these rules do not appear to have been widely publicised either within or outside of HMRC.

Additionally, the recently closed consultation on 'off payroll' in the private sector has generated a lot of press coverage and, if new rules are introduced which mirror the 'off payroll' in the public sector rules, one of the first places HMRC will review will be 'intermediaries' reports.

Are you an employment intermediary?

Any organisation which provides workers' services as part of a supply chain (who are not on the payroll) will need to consider if they have a reporting obligation in light of the rules.

Specified intermediaries can range from large organisations to small enterprises and individuals, where workers are supplied to the end client. This applies across all sectors of the labour market.

You must send a report to HMRC if at any time in a reporting period you:

  • are an agency
  • have a contract with a client
  • provide more than one worker's services to a client because of your contract with that client
  • provide the worker’s services in the UK or if the services are provided overseas, that the person is resident in the UK
  • make one or more payments for the services, this includes payments to third parties.

Where there are a number of parties providing workers in the contractual chain, the HMRC reporting obligation rests with the final intermediary/agency before the end user ('Intermediary One').

Where there are several intermediaries in the chain, each will need to contact the next one down in order to request the above information to enable 'Intermediary One' to submit the return.

This applies even if you withhold tax under the 'Construction Industry Scheme' (CIS). However, if the workers you supply provide their services at sea in the oil and gas industry wholly on the UK continental shelf, you will not need to send HMRC reports. The reporting requirement also does not apply where there are special exemptions for certain types of workers, such as actors, entertainers, photographic or artists; models, or services provided wholly at the worker's own home among others.

Could the agency rules apply?

If you supply workers you could find that the rules introduced in April 2014 apply and you are required to operate PAYE/NIC, this applies where:

  • an individual personally provides services to another business, even though the individual is not an employee of the agency or the business
  • the individual is subject to (or to the right of) supervision, direction or control in the manner in which he or she provides those services.

The fact that a worker may be exercising a profession, chargeable as trading income with liability for Class 2/4 NICs, in respect of certain engagements the worker undertakes, is not in itself sufficient to take that individual outside the scope of these requirements.

The fact that workers are professionally qualified, skilled or experienced may mean they are not, in practice, subject to detailed supervision, direction or control. In this case there will usually still be a right of supervision, direction or control which can be exercised on the rare occasion when the need arises.

If you do not have a PAYE/NIC obligation under these rules then the intermediaries reporting needs to be considered.

More information can be found on HMRC's website.

Who needs to be included on the intermediaries return?

Any workers (self-employed), including partners within a partnership and limited company directors, who personally provided their services to a client through you.

What data is required on the return?

The quarterly reporting regime has applied from 6 April 2015. This requires you to specify the reason why you are not required to operate PAYE and NIC on payments. The detailed return includes data requirements on the worker and on payments made. The return must be in the required format and uploaded to the HMRC website.

More information can be found on the website.

When is the return due?

Reporting period  Deadline for filing a return  Deadline for replacing a return 
 6 April – 5 July  5 August  5 November
 6 July – 5 October  5 November  5 February
 6 October – 5 January  5 February  5 May
 6 January – 5 April  5 May  5 August

An information return can be amended or replaced until the end of the next tax quarter.

Examples of when a return might be required

  • You are asked to help a client by seconding a person to prepare a draft document for a property transaction. You send a self-employed individual. A report would be needed. However, if the contract states the firm should draft the sale agreement, which would no doubt include the time for the individual preparing it, no report is needed
  • A limited liability partnership (LLP) with a linked service company and all the self-employed workers (and employed workers) are engaged via the service company and then provided to the LLP. In this case you should consider the agency rules from April 2014 and, if they do not apply then consider an intermediaries report.
  • XY Ltd enters into a contract with Z Ltd. Under the contract, XY Ltd will supply the services of two installation workers to Z Ltd.
    • XY Ltd does not have an employee who has the requisite skills and so in order to fill its obligations to Z Ltd, will enter into a contract with ABC Ltd.
    • ABC Ltd is a personal services company.
    • ABC Ltd invoices XY Ltd on a day rate basis and then XY Ltd invoices Z Ltd, also on a day rate basis, making its profit by applying a mark-up to the day rate.
    • XY Ltd needs to make a report and include each worker's specified personal details and working dates for each client, the total payments to each in the quarter, reason code D (Ltd company), and an indication of whether VAT was charged.

Things to consider

Organisations using off payroll workers should regularly review their procedures to determine if they have a reporting requirement, either in providing workers to others or even between connected organisations.

Key questions to consider

  • Do they have workers for whom they pay without deducting PAYE/NIC?
  • Do they use these off-payroll workers to fulfil customer contracts?
  • Is the worker's service in the UK (or is the worker resident in the UK if the service is provided overseas)?

If the answer to all of these questions is yes, then a report may be required and the organisation should review the rules if needed. They should set up a process for capturing the required information on a regular basis in order to determine on each occasion if a quarter return is required.

HMRC has set up a special unit to review these returns (with appropriate software) and to focus on intermediaries generally. The returns do give HMRC greater visibility of the payments made to workers outside of payroll, which could result in status enquires being conducted on the intermediary where workers are engaged on a self-employed basis, or on any Personal Service Companies via IR35. Organisations unsure about their reporting obligations should seek specialist advice where necessary.

This article first appeared in Global Payroll Association.

Contact Us

Caroline Harwood
Caroline Harwood
Partner, Head of Share Plans and Employment Tax