Tax Avoidance: Risks for Recruiters

Tax Avoidance

Tax avoidance and evasion has been a hot topic for a while now, and there’s a reason why we and other responsible industry experts keep bringing it up. With the usual pressure on rates and IR35 issues plaguing the public sector, many contractors are looking for ways to maximise their incomes and that makes them vulnerable.

One result has been an explosion in the use of non-compliant tax avoidance schemes by contractors who are either unaware of the risks or have decided to accept them for the chance to take home more money. This is extremely worrying, particularly since it isn’t just the contractor who’s at risk.

The risks of tax avoidance

Last year we reported on the Criminal Finance Act and the introduction of a new criminal offence; failing to prevent the facilitation of tax evasion which made companies criminally liable when their employees participate in, or facilitate, criminal tax evasion. There are two main risks;

  • That recruiters’ staff may introduce contractors to non-compliant suppliers who then help the contractor evade tax.
  • That recruiters’ staff may accept incentives from suppliers, and not declare them as income, which could amount to criminal tax evasion.

Either of these may result in criminal prosecution for the recruitment company, even if senior management were not aware. Our advice is the same now as it was then; protect yourself by ensuring all your suppliers are FCSA Accredited Members.

Untaxed incentives

It has been reported that HMRC are billing consultants for unpaid tax on incentives received from an Umbrella or Accountancy service provider. This tells us two things; that consultants are accepting incentives and not ensuring the tax is paid, and that HMRC are catching them. Recruiters should be aware that if their staff are caught doing this they are at risk of criminal prosecution, and it doesn’t matter if they knew about it or not. A compliant supplier will ensure that tax is paid on all incentives paid to your consultants. However, there is still a requirement for a consultant to report the value of rewards received as part of their annual self-assessment return.

Tax avoidance schemes

When a tax avoidance scheme is investigated by HMRC, the provider will typically cease trading, allowing them to avoid any consequences and phoenix into the next scheme. The contractor will be left with the tax bill, including interest and penalties, and this alone should give recruiters pause for thought.

As a recruiter, if you introduce contractors to a supplier who later close down and leave them with financial problems, they’re likely to hold you responsible. You can expect your clients to hear about it, and there’s little chance of retaining those contractors, or indeed recruiting anyone in their network. And while having angry contractors complaining about you all over the internet doesn’t sound like much fun, the potential damage doesn’t stop there.

By allowing your staff to introduce contractors to a tax avoidance scheme, you may have breached the Criminal Finance Act 2017. Claiming not to know about it is no defence, as you’re expected to have reasonable measures in place to prevent the facilitation of tax evasion. The only effective protection is to take control of your supply chain and ensure all your suppliers are doing things properly.

If you have questions about this issue, or if Orange Genie can help in any way, please contact our expert team on 01296 468 483 or email info@orangegenie.com.

 

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