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What do agencies need to know about onshore and offshore legislation?

 

From 6 April 2014, the Onshore and Offshore Intermediaries legislation took effect. The aim? To reduce tax avoidance.  The impact? Every employer now has new legal duties to fulfil.

 

What are the issues?

Tax avoidance was at the heart of two Government Consultations, ‘Offshore Employment Intermediaries’ and ‘Onshore Employment Intermediaries: False Self-Employment’. With the former, HMRC aimed to crack down on schemes where offshore employers are avoiding paying full UK PAYE income tax and National Insurance Contributions (NIC) for their temporary workers.

The latter was intended to clamp down on onshore intermediaries who are paying their temporary workers on a ‘bogus’ self employed basis, thus avoiding income tax and NIC payments. To tackle these issues, the Government passed new legislative changes which took effect on 6 April 2014, with reporting to HMRC by agencies/RPOs required from April 2015.

 

Agency reporting requirements

From April 2015, all agencies/RPOs who contract directly with the hirer must report quarterly to HMRC on all the gross payments they make in their supply chain, and include the following information:

• full name

• National Insurance number

• address

• date of birth

• gender

• passport number or ID card number (if not UK citizen)

• reason why income tax and NIC has not been deducted by the employment intermediary

• name and address of the business supplying the worker to the employment business

• the number of hours to which the payment relates

 

How the new legislation affects you

The new legislation directly affects recruitment agencies/RPOs that place temporary workers.

• If you are the agency or RPO who directly contracts with the end hirer, you will now be liable for any underpaid tax and National Insurance for all the self-employed temporary workers in your supply chain, regardless of which intermediary or service-provider pays them.

• You will have to prove self-employment, in particular that the worker was not subject to control by the hirer. Unless you can provide sufficient evidence (contracts are not enough), then you will be liable for the correct amount of tax and NIC as if the worker had been employed by you under PAYE – so the financial risk to you is serious.

• You will have no legal defence, other than where fraud is involved.

• Targeted anti-avoidance provisions (TAAR) will be aimed at those who try to circumvent the legislation.

• From April 2015, you will be required to report quarterly to HMRC all ‘gross’ payments made by you to workers and/or intermediaries. This reporting will be very onerous.

• HMRC has the ability to pass any unpaid tax/NIC liability onto the directors of the agency/RPO making them personally liable.

• If you use an offshore intermediary, you will need to prove that the correct amount of PAYE income tax and NIC has been paid for each temporary worker. Where tax/NIC is underpaid by the agency/RPO, you are personally liable.

 

What must you do to get ready?

HMRC is in effect using agencies/RPOs to drive tax compliance, while holding directors of agencies personally responsible for any under-payments.

We suggest that you take the following action:

• a detailed audit of all your current temporary workers and their intermediaries to determine how workers are paid and to assess your risks – moving workers where necessary, and put in place and enforce a strict Preferred Supplier List (PSL) of service providers, ensuring you have no financial risks.

Agencies/RPOs will find it difficult to prove that the temporary worker is self-employed and not under the ‘control’ of the hirer. Agencies/RPOs should avoid placing workers who are self-employed, or workers engaged by intermediaries based offshore. The financial risks to agencies/RPOs of underpaid tax and NIC are unquantifiable.