Intermediary rules: What your clients need to know

ARE YOU AWARE of the intermediary rules and how they may impact?

The new rules relating to the engagement of workers via an intermediary came into operation in April 2014. From our discussions with clients there seems to be either total ignorance to the changes, or that they have misunderstood the extent of compliance they need to undertake.

The intermediary rules are split into three distinct categories and cover the engagement of labour when:

1. A worker is supplied via an overseas intermediary
2. A worker is supplied via a UK intermediary
3. A worker is operating in the oil or gas industry

It is not my intention to cover off the third category – seeing as those operating in these industries will know of the rules that have been introduced.

It is important to appreciate that this is not just limited to the engagement of labour via an employment agency but to any arrangement for the supply of workers from one concern to another. It would therefore cover situations when one company provides workers to another say, a consultant.

This would not therefore arise where the arrangement is to undertake a particular task for which the price is agreed and workers supplied to undertake the task in hand. Therefore, for instance, a firm of accountants sending a team to a client company to undertake an audit would be excluded from these new rules. However, if a firm of accountants provided a worker on secondment to undertake a particular project then this would be caught.

All engagers of workers via a third party must be aware of the changes in the tax/NI rules. If the worker is being supplied via an overseas intermediary then the UK client will need to be operating PAYE/NI on the payments they make to the overseas intermediary. If the intermediary is UK-based then it is really a matter for the intermediary to comply with the tax rules.

These rules apply where:

• A worker personally provides their services;
• There is a contract between an end client (or someone connected with them) and any third party (ie. The agency); and
• As result of that contract the services of the worker are provided, or the client pays for the services to be provided.

In our experience many engagers of labour via intermediaries do not have robust systems in place to determine whether this is supplied from an intermediary who is UK or non-UK based. Given the change in the tax rules this flaw can leave the UK client exposed to a tax liability. In light of the risks we would recommend that checks are undertaken at the outset of any engagement over the location of the intermediary and you need to involve payroll in any which relate to a non-UK concern. This may present problems for payroll on how they deal with the withholding, given the rules within RTI.

Intermediary responsibilities

In regard to a UK intermediary it is a matter not for the end client, but the intermediary themselves to operate PAYE/NIC on payments made. If the intermediary believes the nature of the arrangement is outside of the new rules then it must retain details and from April 2015 comply with the requirements to provide returns of all such payments. In this regard it is important for the end client to ensure that the contract they have in place with the intermediary does not pass on to them any cost of PAYE/NI should this arise.

There had been some question over what happens if the contract between the intermediary and worker is clearly outside of the new rules but given the way the end client controls the worker this makes the rules to be applicable. While it had been suggested that this could give a problem to the end client, the legislation makes this clear that this would only be an issue if the worker and end client had misled the intermediary over the basis of the working agreement. This in the view of HMRC is going to only occur in a very limited number of cases.

So for those involved in the engagement of workers from a third party, it is important to take a step back to ensure their procedures comply with the legislative changes.

Alastair Kendrick is a tax director at MHA MacIntyre Hudson

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