On 6 April 2015 the new record-keeping, returns and penalties provisions affecting employment agencies will come into force. The first return (for the period from 6 April to 5 July) will have to be made to HMRC by 5 August 2015.
This is a significant change and puts the onus onto employment agencies to explain to HMRC why, if they have not deducted PAYE, they consider an individual they have placed should not be subject to PAYE.
In December 2013, HMRC published a consultation on the tax treatment of workers supplied by agencies. The main proposals were that:
At the same time HMRC published a note clarifying how the proposed new rules and the IR35 rules would work together. The note explained that, although a personal service company (“PSC”) would fall within the definition of a "third party" or "agency" that stands between the worker and the end client, the agency rules would apply only if all four of the following conditions are met:
Where the agency legislation does not apply, but the relationship between the worker and the end client would (absent the PSC) be one of employment, IR35 still operates as before.
In 2014, HMRC published responses to its consultation. Importantly, HMRC clarified that the record-keeping, returns and penalties provisions would only apply from 6 April 2015 (with the first return due by 5 August 2015.
What do agencies need to do?
Employment agencies will have to provide a report to HMRC detailing workers it has provided to end clients that it hasn’t treated as employees for tax purposes.
If an agency is sending a report, it must include the following information in respect of each worker:
In relation to PSCs HMRC has clarified that, where a PSC has only one individual providing services to an end client, the PSC will not be a specified intermediary and will therefore have no filing responsibility.
Reports must be sent quarterly. As set out above, the first report must be sent by 5 August 2015.