Employment intermediaries reporting obligations and associated penalties

Mon 17 Sep 2018

This note summarises some points on the employment intermediaries’ penalty regime as highlighted in the First tier Tribunal (FTT) case of Expion Silverstone Ltd, together with a reminder of the reporting obligations.  In this FTT case, the fact that the penalties were issued by computer and not by an ‘officer of the Board’ (an HMRC individual), meant that the penalties were invalid.

Since 6 April 2015, ‘specified employment intermediaries’ making payments to workers they have engaged to work for the intermediary’s client, have had an obligation to submit quarterly returns to HMRC (see SI 2015/171, HMRC guidance here).  The returns must itemise those payments made to their workers where no PAYE/NIC has been operated (subject to some exceptions), or that there are none.  The ICAEW has also produced Tax Guide 16/17 (Employment Intermediaries) on this area.

Reporting obligations continue until the intermediary falls outside the definition of a ‘specified’ intermediary’ for four consecutive quarters, or has informed HMRC that it is no longer in business as an employment intermediary.

Intermediary reporting obligations will therefore require the filing of nil returns where there is no information to report, unless certain conditions are met. The penalties for failure to file on time consist of an initial penalty not exceeding £3,000 (based on the number of failures in a 12 month period and initially starting at £250 for the first failure) and further penalties not exceeding £600 per day if failure continues after the initial penalty has been imposed.

The Expion case summary indicates that HMRC did not have any record of the officer who made the determination of a penalty for the reporting failure, nor any evidence of how or when that determination was made. The automatic issue of a penalty notice in this case, meant that HMRC had not followed the requirements of the legislation, so the penalties were invalidly issued.

Commentary

There have been a number of cases where penalties have been vacated where HMRC has only relied on its IT systems to generate the penalty assessment. Consequently those receiving penalties should examine how those penalties were issued.  HMRC may also be reconsidering its procedures around the issue of penalties (for example if a case is highlighted on its computer systems officers could then be prompted to issue the penalty assessment themselves), or a possible change in the law.

The compliant strategy for those within scope of these rules should be to meet any reporting and payment obligations and avoid the distraction to business caused by penalty assessments. For a further discussion of the employment intermediary reporting obligations, please get in touch with a member of the Mazars employment tax team.