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Onshore Intermediaries
False Self-Employment & Reporting Requirements
Version: 24/02/15 v.2
1.
Onshore Intermediaries – legislation.............................................................................................. 1
2.
Employment Intermediaries – Reporting Requirements ................................................................ 2
1. Onshore Intermediaries – legislation
s.16 Finance Act 2014 – amends Chapter 7 of Part 2 of s.44 – 47 Income Tax (Earnings and
Pensions) Act 2003 [ See Annex C below]
This new legislation is to prevent employment intermediaries facilitating false self-employment and
avoid NICs and income tax. In basic terms, the legislation means that agencies need to prove that
any self-employed worker they place with a client is genuinely self-employed, to do this they will
have to prove that the worker is not under the direction, supervision and control of anyone. If they
cannot prove this then the agency will have to pay PAYE on the fees paid to a self-employed
individual.
The term ‘employment intermediary’ does not refer simply to a traditional employment agency. In
fact, it refers to any company where, generally speaking:




an individual personally provides services to a client;
there is a contract between the client; and
a person other than the worker, the client or a person connected with the client (the
“agency”); and
the client pays for the services.
There has been some confusion as to whether Personal Service
Companies (PSCs) are caught by the legislation but, as seen below,
HMRC have released guidance to say that PSCs will generally not be
covered by the legislation – [See Annex B below.] It is advisable,
however, to ensure that the worker provided by the PSC is a
shareholder, and this can be checked quite simply through Companies
House. The agency then needs to make a record of the fact that they
have checked and they should then be compliant with the legislation.
PSCs are, however,
included in the
reporting
requirements which
will be introduced
from 6 April 2015.
Supervision, direction or control
To accompany the change in legislation, HMRC produced a guidance document on supervision,
direction and control. This supplements the information already provided in the Employment Status
 Re: Legal Consulting Limited 
Company No: 07161095  VAT No: 122873224
Director: Rebecca Seeley Harris LLB (Hons) LLM MSc
Reg Address: Trees Court House  Trees Court  Topsham  Devon  EX3 0HP
Email: rebecca@relegalconsulting.co.uk Web: www.relegalconsulting.co.uk
Manual1. First, it is noted that supervision, direction and control is a ‘qualifying condition’ which
must be satisfied before the provisions of the agency legislation can apply. Secondly, the manner in
which the person provides the services must be subject to supervision, direction or control or “…the
right of…”2, the latter referring to a contractual right whether the right is exercised in practice or not.
Thirdly, supervision, direction or control can be exerted by “…any person…”, not just the person the
worker has been supplied to work for.
HMRC have accepted the courts’ interpretation of what constitutes ‘control’ for the purposes of
employment status. Accordingly, HMRC rely on the leading authority on employment status of the
MacKenna Test, which is stated as the first case to place the importance of control when
determining employment status. HMRC also rely on Autoclenz, Talentcore Ltd3 and Serpol and the
issue of ‘right’ of control is clearly emphasised.
In all of the examples given in the guidance document, the individual only has a contract with an
employment business and themselves, under which they provide their services to end clients.
They do not enter into a contract with any of the end clients and they are not providing their
services through a personal service company, a managed service company or an umbrella
company.
Definition of supervision, direction and control
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/290051/Definition
_of_Supervision_Direction_or_Control_with_supporting_examples.pdf
Anti-avoidance
The legislation includes a Targeted Anti-Avoidance Rule (TAAR) to deter tax avoidance.
2. Employment Intermediaries – Reporting Requirements
From 6 April 2015, intermediaries must return details of all workers they place with clients where
they don’t operate Pay As You Earn (PAYE) on the workers’ payments. The return will be a report (or
reports) that must be sent to HMRC once every 3 months. It is advisable to consult the guidance:
Employment intermediaries: reporting requirements
https://www.gov.uk/government/publications/employment-intermediaries-reportingrequirements
You will need to 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 (including payments to third parties)
1
ESM 2005 - Agency and temporary workers: right of supervision, direction or control; ESM 0526 - Guide to determining status: control
over how the work is done; ESM 0528 - Guide to determining status: control over experts
2 Serpol Ltd v Revenue & Customs [2011] UKFTT 174 TC
3 Talentcore Ltd (t/a Team Spirits) v HMRC [2011] UKUT 423 (TCC) – ESM7315
2|Page
Personal Service Company
The guidance in the box below is from HMRC on GOV.UK “What this means for an intermediary”4.
Unfortunately, the guidance is a little confusing, but what we know is that someone has to report on
the PSC.
One-person limited companies, or personal service companies (PSCs), that only supply a client
with 1 worker don’t have to send reports to HMRC.
If the worker is supplied through an intermediary they will be included in the return of the
intermediary that has the contract with the end client.
If a PSC supplies more than 1 worker, including any subcontracted workers, it will be acting as an
intermediary and will have to send reports for each reporting period.
Basically, the follow appears to apply:



A PSC supplying one worker to a client doesn’t have to report because the ‘intermediary’
supplying them will report;
If there is more than one intermediary, the intermediary with the contract with the client
does the reporting; unless
The PSC supplies more than one worker, including a sub-contractor, in which case the PSC
will do the reporting.
What is still not clear, is whether the intermediary is supposed to check if they have the reporting
obligation or not. These contract chains can be quite complicated and its not always clear who has
the reporting obligation.
Worker details
For clarity, the information that an intermediary will need to include in their return is set out below:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
4
intermediary name and address
PAYE number and PAYE reference
reporting period from and to
is this a NIL return – Y/N
have you ceased operating – Y/N
worker name
worker National Insurance Number
where no NINO is available: Date of Birth and Gender
worker UTR (where self-employed or in partnership)
worker address and postcode
worker engagement details
worker UTR (where self-employed or director)
start date and end date of engagement
amount paid for the workers services (currency and inclusive of VAT) (only for the selfemployed and others they have engaged where PAYE has not been operated)
has income tax been deducted from these payments
name of party paid by intermediary for workers services and address
https://www.gov.uk/government/publications/employment-intermediaries-reporting-requirements/what-the-changes-mean
3|Page
•
Companies House registration number of party paid by intermediary for worker’s services (if
applicable)
In reality, the agency will have most of this information already, maybe apart from the Unique
Taxpayer Reference (UTR).
You must select the reason why you didn’t operate PAYE on the workers payments from these
options:
A:
B:
C:
D:
E:
F:
Self-employed
Partnership
Limited liability partnership
Limited company including personal service companies
Non-UK engagement
Another party operated PAYE on the worker’s payments
Reporting deadlines
Quarterly
30 days after the end of the quarter, e.g:
6 April 2015 – 5 July 2015 report submitted by 5 August 2015 (date report can be replaced by – 5
November 2015)
You must use HMRC’s report template to create the reports. HMRC will provide an online service for
you to upload and send your report.
Penalties
If your report is late, incomplete or incorrect you may be charged a penalty.
New automatic penalties have been introduced for not sending a report or for sending a late report.
These are given based on the number of offences in a 12-month period. These are:
£250
£500
£1,000
first offence
second offence
third and later offences
Further information:
Employment intermediaries: reporting requirements
https://www.gov.uk/government/publications/employment-intermediaries-reporting-requirements
Employment Intermediaries: data requirements for software developers
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/402888/150210_E
mployment_intermediaries_data_requirements_v1_1.pdf
4|Page
Annex A
What this means for the worker
https://www.gov.uk/government/publications/employment-intermediaries-reportingrequirements/what-this-means-for-a-worker
If you use an intermediary or agency to get work you aren’t usually considered an employee of the
client or intermediary because you don’t:


have a contract with the client
do any work for the intermediary
Changes to the law mean an intermediary, or any third party that has a contract with a client that
results in you doing work for the client, must treat you as their employee for Income Tax and
National Insurance purposes when certain conditions are met.
The intermediary will be responsible for operating Pay As You Earn (PAYE) and Income Tax and
National Insurance will be deducted from your payments where those conditions apply.
Because of these changes, you may have to provide the intermediary with your:




name
address and postcode
National Insurance number or gender and date of birth
unique taxpayer reference (UTR) number
This will allow the intermediary to complete and send legally required reports to HM Revenue and
Customs about workers they don’t operate PAYE for.
5|Page
Annex B
Interaction of Personal Service Companies with the Proposed Changes to
Chapter 7 S44-47 ITEPA 2003 (The Agency Legislation)
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/275993/Interactio
n_of_Personal_Service_Companies_with_the_Proposed_Changes_to_Chapter_7_S4447_ITEPA_2003.pdf
For the proposed new Agency legislation to apply to a worker providing their services through a PSC,
all of the following qualifying conditions need to be met:
•
the worker personally provides, or is personally involved in the provision of, services to
another person as a consequence of a contract between that person and a third person;
•
the manner in which the worker provides the services is subject to (or to the right of)
supervision, direction or control by any person.
•
remuneration is received by the worker in consequence of providing the services;
and
•
that remuneration does not constitute employment income apart from under the Agency
legislation.
As is currently the case, the proposed Agency legislation will not generally apply where a worker is
engaged via a PSC, as all the above criteria will not normally be met. This is because:
a)
b)
c)
the worker as a genuine consequence of their shareholding in the PSC will not normally fall
within the new Agency legislation.
Similarly, the Agency legislation only applies when the worker receives remuneration which is
not employment in come before the provisions of that legislation are applied. Any salary paid
to the worker by the PSC is already employment income so the new Agency legislation would
not apply to that remuneration.
Loans are made by reason of the employment with the PSC. Beneficial or written off loans are
chargeable to tax/NICs as earnings but do not normally arise as a consequence of the worker
providing the services. As such, they would not fall within the scope of the Agency legislation.
If neither the Agency legislation nor the Managed Service Company legislation applies then anyone
working through a PSC needs to consider the Intermediaries legislation, more commonly known as
IR35. This will continue to be the case under the proposed new legislation. IR35 applies where the
relationship between the worker and the engager would be one of employment if the PSC and any
other party in the contractual chain did not exist.
6|Page
Annex C
s.44 – 47 Income Tax (Earnings and Pensions) Act 2003
(As amended by Finance Act 2014)
Chapter 7 Application of provisions to agency workers
Section 44
Treatment of workers supplied by agencies
(1)
(2)
(3)
(4)
(5)
(6)
This section applies if—
(a)
an individual (“the worker”) personally provides services (which are not excluded
services) to another person (“the client”),
(b)
there is a contract between—
(i)
the client or a person connected with the client, and
(ii)
a person other than the worker, the client or a person connected with the
client (“the agency”), and
(c)
under or in consequence of that contract—
(i)
the services are provided, or
(ii)
the client or any person connected with the client pays,
or otherwise provides consideration, for the services.
But this section does not apply if—
(a)
it is shown that the manner in which the worker provides the services is not subject
to (or to the right of) supervision, direction or control by any person, or
(b)
remuneration receivable by the worker in consequence of providing the services
constitutes employment income of the worker apart from this Chapter.
If this section applies—
(a)
the worker is to be treated for income tax purposes as holding an employment with
the agency, the duties of which consist of the services the worker provides to the
client, and
(b)
all remuneration receivable by the worker (from any person) in consequence of
providing the services is to be treated for income tax purposes as earnings from that
employment, but this is subject to subsections (4) to (6).
Subsection (5) applies if (whether before or after the worker begins to provide the
services)—
(a)
the client provides the agency with a fraudulent document which is intended to
constitute evidence that, by virtue of subsection (2)(a), this section does not or will
not apply, or
(b)
a relevant person provides the agency with a fraudulent document which is
intended to constitute evidence that, by virtue of subsection (2)(b), this section does
not or will not apply.
In relation to services the worker provides to the client after the fraudulent document is
provided—
(a)
subsection (3) does not apply,
(b)
the worker is to be treated for income tax purposes as holding an employment with
the client or (as the case may be) with the relevant person, the duties of which
consist of the services, and
(c)
all remuneration receivable by the worker (from any person) in consequence of
providing the services is to be treated for income tax purposes as earnings from that
employment.
In subsections (4) and (5) “relevant person” means a person, other than the client, the
worker or a person connected with the client or with the agency, who—
(a)
is resident, or has a place of business, in the United Kingdom, and
7|Page
(b)
is party to a contract with the agency or a person connected with the agency, under
or in consequence of which—
(i)
the services are provided, or
(ii)
the agency, or a person connected with the agency, makes payments in
Section 45
Arrangements with agencies
If—
(a)
an individual (“the worker”), with a view to personally providing services (which are not
excluded services) to another person (“the client”), enters into arrangements with a third
person, and
(b)
the arrangements are such that the services (if and when they are provided) will be treated
for income tax purposes under section 44 as duties of an employment held by the worker,
any remuneration receivable under or in consequence of the arrangements is to be treated
for income tax purposes as earnings from that employment.
Section 46
Cases involving unincorporated bodies etc.
(1)
Section 44 also applies—
(a)
if the worker personally provides the services in question as a partner in a firm or a
member of an unincorporated body;
(b)
if the agency in question is an unincorporated body of which the worker is a
member.
(2)
In a case within subsection (1)(a), remuneration receivable in consequence of the worker
providing the services is to be treated for income tax purposes as income of the worker and
not as income of the firm or body.
Section 46A
Anti-avoidance
(1)
This section applies if—
(a)
an individual (“W”) personally provides services (which are not excluded services)
to another person (“C”),
(b)
a third person (“A”) enters into arrangements the main purpose, or one of the
main purposes, of which is to secure that the services are not treated for income tax
purposes under section 44 as duties of an employment held by W with A, and
(c)
but for this section, section 44 would not apply in relation to the services.
(2)
In subsection (1)(b) “arrangements” includes any scheme, transaction or
series of
transactions, agreement or understanding, whether or not legally enforceable, and any
associated operations.
(3)
Subject to subsection (2) of section 44, that section applies in relation to the services.
(4)
For the purposes of subsection (3)—
(a)
W is to be treated as being the worker,
(b)
C is to be treated as being the client,
(c)
A is to be treated as being the agency, and (d)
section 44 has effect as if subsections (4) to (6) of that section were omitted.”
Section 47
Interpretation of this Chapter
(1) In this Chapter “agency contract” means a contract made between the worker and the
agency under the terms of which the worker is obliged to personally provide services to the
client.
(2) In this Chapter “excluded services” means—
(a)
services as an actor, singer, musician or other entertainer or as a fashion,
photographic or artist’s model, or
(b)
services provided wholly—
8|Page
(i)
(ii)
in the worker’s own home, or
at other premises which are neither controlled or managed by the client nor
prescribed by the nature of the services.
(3) For the purposes of this Chapter “remuneration”—
(a)
does not include anything that would not have constituted employment income of
the worker if it had been receivable in connection with an employment apart from
this Chapter, but
(c)
subject to paragraph (a), includes every form of payment, gratuity, profit and
benefit.
9|Page