Agency Returns: How are you finding it?

Are agencies coping with new reporting requirements?

Agencies and other employment intermediaries have now had to file quarterly returns for all those workers engaged on a self-employed basis, for nearly 1 ½ years now. To enable HMRC to understand how agencies are dealing with this and their awareness of what is required and the associated penalty regime, the department commissioned a qualitative research study. This study, which involved 60 in-depth interviews with employment intermediaries, examined:

• the levels of awareness of the new requirements and penalties;
• barriers and drivers of behaviour;
• the impact of the new penalty regime; and attitudes to the use of penalties overall.

Awareness and understanding

Awareness and understanding of the reporting requirement varied. Those who filed reports on time expressed greater awareness and knowledge compared to non-filers, who often lacked knowledge or were completely unaware of their obligations. This lack of awareness was identified as a key reason for non-reporting. Enlightenment was often determined by how ‘plugged in’ agencies were to potential sources of information, such as umbrella companies, industry associations, commercial software companies and communications from HMRC.

Knowledge of the penalty regime varied across those interviewed. Many agencies naturally assumed that there would be penalties attached to the reporting requirement, even though they were unaware of the specific details of the regime. Employment intermediaries were more preoccupied with finding information and guidance on the reporting process rather than the penalty regime.

Influences on compliance

Many agencies did not want to risk ‘getting on the wrong side’ of HMRC and there were no examples of deliberate non-reporting. There was some evidence however of employment intermediaries moving their workers from self-employment to PAYE so as to avoid the reporting requirement. One agency told the researcher “I thought ‘why have these 5 [contractors]?’ We can easily find other people to do the job…..Let’s not get involved.”

Attitudes towards HMRC were found to affect decision making with some agencies living in fear of the department, whilst some others held HMRC in high regard. Who are these people in the latter category??!

The threat of penalties motivated agencies to take the most risk-adverse course of action and worked to ‘tip the balance’ where an agency was undecided on what to report.

Factors affecting reporting

There were a range of factors which determined how straightforward, demanding or time-consuming it was for agencies to develop and submit reports. These included:

• the number of contractors engaged and the contractors’ responses to providing information;
• the internal resources and systems of intermediaries, in particular those responsible for compiling and submitting the report (a dedicated member of staff or the business owner) and the processes in place to support reporting (manual or automated systems);
• the role of umbrella companies in supporting the requirement;
• the length of the supply chain and specifically ability to identify the end client; and
• Experiences of HMRC systems and guidance to support this.

Apparently there was clear evidence that the process was becoming easier over time as agencies adapted their systems and became more familiar with the requirements.

Late filers

Late filers tended to be small and medium sized agencies, ie less than 249 staff, providing workers (from 10–10,000) across a range of sectors such as education, IT, law, healthcare, social care, construction, design, finance, administration and logistics.

Larger agencies tended to appoint a designated employee, such as a HR manager or head of compliance, to fulfil their reporting obligations. Whereas in small and medium sized employment businesses this responsibility fell on the company director or senior employee rather than a specialist member of staff.

Non-filers

This group was mainly made up of small businesses employing less than 50 staff and who supplied a small number of workers (no more than 50) to end clients within construction, telecoms, finance, security, healthcare and housing sectors. Non-filers tended to have the smallest networks across the employment industry, which left them at risk of not finding out about the reporting requirements.

There was evidence of agencies speaking to HMRC and being advised that they did not need to file a report as they did not qualify, despite the fact they were providing PSC workers.

Suggestions for improvement

These focused on wider and clearer communication from HMRC along with increased accessibility to tailored advice and making the tools required for reporting more user-friendly. Specific suggestions included:

• better communications, including a campaign to raise awareness and improved guidance and materials.
• greater interaction with HMRC to discuss concerns or queries for HMRC to send out reminder alerts.
• more user-friendly processes of submitting reports, including: an improved upload process which confirmed receipt and successful submissions; greater flexibility in the formatting of the report document, producing fewer glitches and errors and making the reports and the submission page easier to find on Gov.uk.

The full report can be downloaded here: HM Revenue and Customs Research Report 414