On 30th September 2017 a new criminal offence comes into force via the Criminal Finance Act. The new criminal offence is one of failing to prevent the facilitation of tax evasion.
For a business to be liable under the new offence, there must have been two criminal offences under the existing law:
- A criminal tax evasion by a tax payer
- Criminal facilitation of criminal tax evasion by a tax payer by a person acting on behalf of the business
If both of these two offences occur, the new criminal offence makes the business liable for having failed to prevent point 2 listed above.
So what does this mean for UK recruitment agencies (in plain English)?
This new offence means that the recruitment business will be liable under the new offence (thereby potentially receiving an unlimited fine and criminal record) if:
- A contractor is evading tax as a consequence of one of the agency’s recruitment consultants having facilitated this tax evasion by introducing the contractor to the non-compliant payroll provider
- One of the agency’s recruitment consultants is actually evading tax themselves by receiving a gift or incentive from a payroll provider but not declaring it for Income tax and National Insurance.
So what are the key priorities for agencies moving forwards?
- Agencies should operate strict PSL’s of payroll providers so that they can ensure that contractors are not evading tax
- Agencies must put a stop to incentive arrangements with payroll providers whereby an incentive (usually a gift voucher or pre-pay card) is issued directly to the recruitment consultant. This applies even in those instances where the payroll provider is 100% compliant and on the agencies PSL since it is still likely that the recruitment consultant will not declare this voucher for Income tax and National Insurance purposes.
- If agencies require some form of incentive from their PSL partners, this incentive should be on a direct B2B basis so that it is fully disclosed in the company’s accounts.
Marc Scott, sales director at Liberty Bishop writes: “We welcome any new attempts to improve tax compliance and remove rogue traders from our industry. We will be working closely with our partner agencies to ensure that they understand these legislation changes and are fully equipped to deal with them”.
Guidance notes link to date can be found here from HMRC.