New Government rules will require recruitment agencies to provide more information than ever to HMRC about the contractors on their books, including how much they’re paid. We asked an expert what this means in practice, and if there is a link between the new rules and IR35.
What are the current rules?
Currently, all recruiters (agencies and other employment businesses) have to let HMRC know if any of their workers are not treated as ’employees’ for tax purposes, due to Agency Legislation which came into play from April 2014.
The main reason behind this reporting requirement was in response to the epidemic of false self-employment, whereby agency workers would be ‘encouraged’ to register as self-employed purely to lower the tax burden of the end-clients.
The Agency Legislation should not ordinarily apply to limited company contractors, and professional contractors were not the intended target for this particular piece of legislation.
What has changed?
However, proposed additional reporting requirements (PDF), which take effect from April 2015, have raised concerns within the contracting industry, as HMRC now requires a great deal more information about agency workers than before.
Agencies will be required to let HMRC know the details of any workers who are not employed on a PAYE basis, including the following details:
- Contractor’s name, address, date of birth, etc.
- PAYE reference.
- National Insurance number.
- How the contractor was engaged during the period (i.e. was he working via a limited company).
- The duration of each assignment.
- Details of the contractor’s limited company (e.g. company registered number).
- How much was paid to the contractor.
Seb Maley from Qdos Accounting answered some of our questions about these new reporting requirements:
1) Does the new document have anything to do with IR35?
“Not directly, no. HMRC have confirmed previously that IR35 will still operate as normal and there is no intentional cross over with the new legislation. There are some parallels, particularly with the ‘supervision, direction and control’ condition, but both legislations should run independently.”
2) What new information will HMRC hold about agency contractors? What is HMRC really after here?
“Ostensibly the new legislation is aimed at those providing self-employed workers; particularly in the construction industry. However, the approach from HMRC means the net is spread far wider. Agencies will have to report on the PSCs they are placing, which will give HMRC access to some quite attractive and relatively real-time data.
“Whether they are planning on using this for IR35 purposes remains to be seen, but it’s certainly a new way for them to ring-fence potential targets. With the report including details of payment to the PSC, HMRC will also be able to quickly calculate the potential yield from each target.”
3) Do you think this will mean an increase in IR35 investigations?
“Personally I doubt there will be an increase, at least not in the near future. Having said that I wouldn’t be surprised if, once the new legislation is settled in, HMRC do start to use the data in some way. From their perspective, it will certainly be a valuable source of intelligence.”
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