More More More… information
No doubt you have all now got to grips with the real time information system and, like the rest of us, are waiting for HMRC to catch-up and get to grips with the system they developed.
Unfortunately, before this can happen, HMRC have put forward a proposal to collect yet more information.
HMRC have now published some draft legislation intended to amend the PAYE Regulations to include the new requirements for onshore intermediaries.
The Explanatory Guidance attached to the draft legislation states the intention of the reporting requirement being: to report specific information…about themselves and any workers…where the workers have been treated self employed for Income Tax and National Insurance purposes and paid outside of PAYE.
The question is does the draft legislation meet this intention…?
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Who needs to submit a return?
The first place to start is to determine the group of taxpayers that are actually required to make a return.
The Regulations require an Employment Intermediary to make a return if at any time in a tax quarter:
The Employment Intermediary is an agency,
- More than one individual provides services to a client under or in consequence of a contract between the Employment Intermediary and one or more clients,
- Those services are not provided exclusively on the UK continental shelf and
- One or more of the individuals would have been agency workers, but for section 44(2) ITEPA.
All four conditions must be met before an Employment Intermediary is required to make a return under this Regulation.
Firstly, Personal Service Companies (PSCs) can take some comfort in that they are unlikely to have to make such reports; condition 2 above requires more than one individual to provide services to a client. Typically, PSCs have one employee and as such will not meet this condition. Please note, however, this does not mean PSCs will not form part of a report submitted by an Employment Intermediary.
Another important note to mention is in relation to point 4 above which makes reference to the amended legislation, i.e. Section 44(2) ITEPA which states:
Section 44 does not apply if:
- There is no supervision, direction or control (or right of) over the manner in which services are provided, or
- Remuneration receivable by the worker constitutes employment income apart from this Chapter.
Therefore condition 4 seems to suggest, that a return must be made where the provisions of Section 44 are not applied because the operative is not supervised, directed or controlled (or subject to the right of) as to the manner or where payment is made as employment income under some other part of the legislation.
The second part to this is crucial as HMRC seem to be requesting information on payments made where the provisions of Section 44 have not been applied – which pretty much means any operative engaged by the Employment Intermediary that potentially falls within the scope of Section 44. On the literal interpretation, this could mean employees of the agency (whether on employment contracts or pay between assignment contracts), limited company contractors, umbrella companies, etc. regardless of whether PAYE is actually operated!
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The information required
There is a whole raft of information required under the reporting requirements. The Intermediary will need to include its own details as well as details of any operative where Section 44 has not been applied including details of the actual payments made as well as details of why income tax was not deducted.
There seems to be a conflict here with the conditions set out above.
You will note a report must be made on all payments made where Section 44(2) applies yet HMRC require information on why income tax was not deducted but the first condition is likely to include details of payments where PAYE is operated… sounds like information overload!
Whilst also on this point it must be noted that where the reason for not operating PAYE is due to the fact that payment is made to a limited company, information regarding the limited company to who payment was made must also be provided. This of course will include umbrella company details as well as any PSCs.
As we know the recent House of Lords review into IR35 suggested HMRC have no idea as to the effect the IR35 legislation has had nor are HMRC aware of the number of PSCs currently trading – could this be the reason for requiring such information from Employment Intermediaries…
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Penalties
The introduction of new returns usually brings with it new penalties and unfortunately, it is no different in this case.
The penalties are due to come in to force on 6 April 2015 (simultaneously with the reporting requirements mentioned above).
The penalties will be issued when:
- There is a failure to make the required return and/or
- An incorrect return has been made
HMRC can issue an initial fixed penalty of up to £3,000. In addition, there may be further daily penalties of up £600 per day which can be issued for continued non-compliance. These penalties are excessive considering they only apply in relation to a failure in meeting the reporting requirements! The reporting requirements are in respect of information only so it comes as a surprise that the penalties for non-compliance are so severe. The level of the penalties does make HMRC’s intentions quite clear and confirms agencies and umbrella companies continue to remain within HMRC’s crosshairs.
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Summary
The draft legislation requires a significant amount of information to be sent to HMRC – whether or not anything is actually done with this information is yet to be seen.
The introduction of the amendment to Section 44 was intended to require information to be reported where PAYE was not operated.
Unfortunately, it is clear HMRC have gone well beyond what they initially intended and have pretty much requested information on all payments made where PAYE has not been applied by the agency itself, regardless of the reason why.
There seems to be a trend emerging from HMRC in relation to the collection of information; we started with RTI where information is submitted by employers on payments made to employees and now the requirement on agencies to submit information on pretty much all payments they make to anybody.
One would hope with all this information at HMRC’s fingertips we may yet see a year where HMRC finally issue correct P800 tax calculations to taxpayers and actually collect some tax rather than becoming the Collector of Information.