In an attempt to put pay to the promotion of tax avoidance schemes for UK contractors, HMRC has introduced amendments to existing legislation which will require recruitment agencies (or employment intermediaries) to report specific information. They will be required to provide details about themselves and any workers that have been involved in the supply of to end clients, where the workers have been treated as self- employed for income tax and NI purposes and paid outside of PAYE. This new requirement will add to the already significant burden on recruitment agencies to gather data from their candidates to satisfy legislation.
Andy Hallett, partner at the SThree Group, reflected “Although the HMRC has made some concessions there will still be an onerous change in the amount of data collection and reporting we as a company will have to undertake”.
The concessions that he refers to were gained by APSCo who have worked closely with HMRC on behalf of their members, to try and ensure that a balance is kept between managing tax avoidance and allowing recruitment agencies to work effectively. It was initially uncertain whether agencies would have to report on PSC contractors but HMRC’s position has now been clarified in the Record Keeping and Reporting Requirements for Employment Intermediaries – Summary of Responses:
“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 responsibilities. A PSC however will appear on a different intermediary’s return where their services have been provided by that intermediary to an end client. If the PSC subcontracts to another PSC or where more than one worker of the PSC provides services to an end client they will be caught by the legislation as a specified employment intermediary and would need to file a return”
This may come of something as a surprise to recruiters as, historically, PSC contractors have been, for the most part, unaffected by the majority of legislation applied to the sector. Lisa Keeble, co-founder, of the umbrella company industry body AUCAE commented. “HMRC are showing quite clearly that they will do whatever it takes to stop tax avoidance within the contractor market and to create a level playing field for both recruiters and umbrella companies who make the proper investment in compliance.
However, this new responsibility is likely to put significant pressure on all but the largest recruitment agencies in terms of additional administration costs. Obviously working with a compliant umbrella company will reduce that burden considerably although the due diligence required to establish compliance has also increased significantly in recent months as have the associated costs”
Pressure on HMRC from Government to increase tax revenues has resulted in targeted campaigns within the contractor sector but have recruiters been forced into a position where they are doing HMRC’s job for them? Andy Hallett has no doubt – “It merely continues the trend of asking Employment Businesses to take on the HMRC responsibilities for collection and enforcement”.