As a contractor, you probably operate your business through a limited company. In the contracting world, this is a personal service company (PSC) – after all you are essentially selling your services.

Anyone who is an “Employment Intermediary” must report details of who they pay gross, without deduction of tax through payroll (applicable from April 2015).

An Employment Intermediary is:

“Any person who (or organisation which) makes arrangements for an individual to work for a third party or be paid for work done for a third party” (s716B ITEPA).

However, an employment intermediary is also defined elsewhere as:

a) An agency – essentially defined as the business that has a contract with the end-client; AND

b) Where more than one individual provides services to a client under a contract between the agency and a client.

These reporting rules will almost certainly affect many of you as contractors in that:

- If you get work through an agency rather than directly, the agency may now ask you for confidential data such as your NI or personal UTR number

- The agency may have to report to HMRC that they paid you/your own PSC gross and state why (see possible reasons below).

You may well think that none of this is your problem as it is the employment intermediary’s or agency’s problem.

BUT your own PSC may inadvertently be an intermediary or agency. And this would mean your company needs to start making these quarterly reports.

Your own PSC will need to make quarterly reports in the following circumstances:

a) Your own company has a contract directly with the end-client (i.e. you have not gone through an agency); AND

b) The contract with your client could be construed as a contract to supply the personal service of an individual to the client RATHER than the supply of a complete service to the client which of necessity requires the work of an individual to work for you; AND

c) It is not just you that your company supplies to the end-client – you also supply another contractor/sub-contractor to the end-client.

So what is the impact of these rules on your business?

1. You may well be asked for personal and sensitive information by agencies – you will have no choice but to provide this information if you want to get the work. You may wish though to check out the agency’s own data protection policies to ensure your data is kept safe and only used for the specific purpose of making the reports to HMRC.

2. Every quarter, you need to ask yourself the following questions:

a) Did your company contract direct with an end-client; and if it did

b) Did your company provide anyone other than you to perform services for the client? and if it did

c)Were the services provided by the subcontracted person or company:

(i) akin to the provision of personal services of an individual to your client: or

(ii) instead were they simply tasks done for you (perhaps on your premises) to enable you to fulfil the contract with your client, (rather than being capable of being construed as personal services done at your client or for your client)?

We ask all clients these questions every time we do your quarterly VAT return for the calendar quarters (June, September, December & March) to identify the need to report and thus avoid penalties.

If you answer yes to questions 2 a), b) and c) option (i), we will then register your business for filing and then in turn submit your quarterly returns online to HMRC.

I am sorry to say this will involve additional fees for the work as it is additional work not covered by the fixed fee agreement. In accordance with our policy of no surprise bills, we have fixed fees for the work as follows:

- For registering the scheme:

£ 195 + VAT (a one-off cost)

- For quarterly filing of returns with data:

£65 + VAT per quarter

- For filing a nil quarterly return:

£30 + VAT per quarter

You can of course undertake this yourself if you wish but do let us know that you are doing this.

The reports have to be submitted to HMRC online quarterly, in accordance with the following deadlines:

Reporting Period

Filing Deadline Date

Date by which you can replace a report

6 April to 5 July

5 August

5 November

6 July to 5 October

5 November

5 February

6 October to 5 January

5 February

5 May

6 January to 5 April

5 May

5 August

Thus the first reports which have to be submitted for the current tax year is by 5 August 2015 for the quarter to 5 July 2015.

You need to continue to file returns, even Nil returns, to HMRC until either you tell HMRC that you are no longer an employment intermediary (we recommend you get an acknowledgement of this), or after filing four successive nil returns.

The full details to report are:

  • - The agency’s full details (name, address, company registration number etc)
  • Full details of the person they paid gross (the worker’s name, address, NI number, UTR number, date they started or finished work in the quarter AND the reason PAYE was not deducted at source AND the name address and company number of the company which was paid).
  • The amount paid (not where another party operated PAYE)
  • Whether VAT was included (not where another party operated PAYE)

There can be one of six possible answers as to why PAYE was not operated

2. / A - Self-employed contractor
3. / B - Partnership
4. / C - Limited liability partnership
5. / D - Limited company, including a PSC
6. / E - On-UK engagement
7. / F - Another party operated PAYE on the worker’s engagements

The returns must be made using a standard template in either a “csv” or “ods” format.

As is the trend with HMRC, late returns, non-submission and inaccuracies will be subject to hefty automatic penalties, £250 for the first offence, £500 for the second offence and £1,000 for further offences.

3. HMRC are going to receive substantial amounts of data about you, your company and what is paid to the company. Whilst the purpose of these new reporting rules is not to attack companies under IR35 - it is to ensure that rules introduced in April 2014 which were designed to stop employees and employers avoiding PAYE where engaged through agencies, are not circumvented – nonetheless, armed with the data, HMRC may well in due course start to look at your PSC to see if it is caught by IR35.

So this may be a good time to get your existing contracts with agencies and end-clients reviewed. We would be happy to do this for you if you wish - our fixed fee is £95 plus VAT per contract review.

Please contact us if you have any queries.

This fact sheet is for information only. It provides an overview of the regulations currently in force and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person or refraining from action as a result of this material can be accepted by the authors or the firm.