Issue regarding payments from client accounts

23 October 2017

We have been made aware of an issue surrounding the ‘Payment Services Regulations’ which could affect payroll payments and pension contribution payments.

The issue surrounds the Payment Services Regulations 2009. The regulations prohibit the process of a payment account by third parties for the purposes of the provision of payment services as “a regular occupation or business activity” (if not authorised by the Financial Services Authority (FCA)) and expose anyone in breach to criminal sanction and fines.

Payroll and pension payments by their very nature represent a ‘recurring payments requirement’ and count therefore as a payments service. They differ from a one off payment that an accountant might make, for example a repayment of overpaid tax for a client, which they pay through their client money account.

The Payment Services Regulations are being developed to tighten up certain areas as a result of the revised EU Payment Services Directive (PSD2). This is required to be implemented in the UK by 13 January 2018. The Treasury has transposed PSD2 into UK legislation in the Payment Services Regulations 2017.

HM Treasury is committed to maintaining and furthering its greater regulation of UK payment services, despite our forthcoming departure from the EU, because it relies on the payment system to provide the default validation mechanism for employer statutory (PAYE) tax reporting. This is a complex area of public policy that we know as the RTI BACS hash cross reference.

What this all means in practical terms is that agents who collect payments from their clients and then pay HMRC through the agent bank account could be acting illegally. Because of changes in legislation/new legislation it is illegal for an agent to act as a payment service provider without being registered with the FCA as a payment service provider. It will have particular impact on the care sector; cases have even been identified where local authorities are providing funds to agents to make payments to an individual who is in receipt of benefits, so that their carers can be paid directly.

The CIPP intend to work with other representative bodies and organisations to raise awareness of this change so that agents have an opportunity to get their house in order prior to the FCA starting to impose these new regulations from January 2018.