Tackling Tax Avoidance

Tackling Tax Avoidance

HMRC is continuing to clamp down on the use and promotion of tax avoidance models which are still rife in the contracting industry.

A big reason for the inability to stop these schemes from operating is because such tax avoidance models are still being promoted, and some recruitment agencies, whether willing or not, are playing a key role in encouraging them.

On 11th October 2021, HMRC published further guidance on ‘how to reduce your risk of using an umbrella company who operates a tax avoidance scheme’, which is aimed at recruitment agencies.

Judging by the number of contractors still operating through tax avoidance models, it is obvious that some agencies are not doing enough to clamp down on partnering with them, and are more concerned with retaining a contractor than ensuring that contractor is being paid compliantly.

The latest guidance published points out not only how to spot an abusive model, but mentions the implications for getting involved in one, and not doing their part to ensure the supply chain remains compliant, including:

  • Tax compliance checks
  • Penalties
  • Tax liabilities
  • Reputational damage
  • Loss of business

An agency could become liable for all of the unpaid income tax and National Insurance Contributions if it partners with a tax avoidance scheme.

Furthermore, the guidance goes on to say that the agency can be responsible for the unpaid tax and NICs even if it was not aware they had engaged with an avoidance model.

So what should an agency be doing?

  1. Perform due diligence on the entire supply chain
  2. Make sure you understand who and where you are sending money to.
  3. Constantly review contractor payslips and ask for evidence that these payslips are being reported to HMRC (RTI/FPS submissions).
  4. Be wary if an umbrella company offers you extortionate incentives to refer business their way. On average an umbrella company makes £25 a week from a worker, so if you get offered £500 for a referral, that is 20 weeks’ worth of income, how can an umbrella company operating correctly offer such incentives?
  5. Check at the Companies House website that the umbrella company is based in the UK.
  6. Start educating your employees, especially your recruitment consultants, who may well be drawn in by high incentives knowing that they personally will not be liable for the tax and NICs.

As always, if you want to have a chat about how i4’s umbrella service operates and what separates us from tax avoidance models, please call our helpful sales team on 0203 603 1290 or email us at hello@i4services.uk.