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Be aware - failure to act on tax evasion could land your recruitment agency with an unlimited fine

Last updated on Friday, July 28, 2017

Written by Andrew Trodden

New rules as part of the Criminal Finances Act 2017 will be coming into effect on the 30th September 2017 and are intended to make it easier for HMRC to convict organisations that are helping to facilitate tax evasion schemes. This is likely to have a heavy impact on recruitment agencies who commonly engage with self-employed freelancers and contractors and help them identify a payroll provider. Please keep reading to find out more about the new rules and the consequences they will have on the recruitment industry.

Having been fast-tracked through parliament because of the snap election called by Theresa May in April, a series of new rules known as the Criminal Finances Act 2017 will be coming into effect on the 30th September. The new rules will heavily impact the recruitment sector, as explained below:

  • Corporate bodies (including your recruitment agency) will be held responsible if they are found to be encouraging tax evasion and directing candidates to the services of unethical payroll providers.
  • If an employee of a recruitment agency points a contractor in the direction of a tax evasion scheme, the organisation as a whole will be subject to punishment (potentially an unlimited fine).
  • Recruitment agencies must ensure they have procedures in place to ensure every employee understands the new rules and the consequences for non-compliance.
  • After the 30th September 2017, if a recruitment agency employee accepts an incentive for referring their candidate to a payroll provider, they are probably breaching the new rules. The following must be acknowledged and understood:
    • The consultant must include any payments received from providers on their personal tax return. The organisation can be held accountancy for tax evasion if the employee(s) who receives incentive payments does not declare it. This is expected to significantly reduce the number of unofficial cash incentives that are paid to recruitment agents.
    • As referenced in the Criminal Finances Act 2017, every freelancer and contractor should be receiving a similar take home pay from payroll providers. Recruitment agencies that promote the services of a payroll provider boasting extra high returns for its users will be breaching the new rules. Recruitment agencies, if they have not already, must have an up to date Preferred Supplier List, consisting of companies that operate in compliance with HMRC.

Your recruitment agency can be found guilty of breaching the new rules if the three factors below are recognised:

1) Tax evasion is carried out by an individual (e.g. a freelancer or contractor).

2) The tax evasion has been made possible by a “facilitator” who has recommended the tax evading services of a third party (e.g. a recruitment consultant has suggested the unethical payroll services of a company to a contractor).

3) The facilitator (the person who has recommended the services of a tax evasion scheme to an individual) is associated with the corporation (in this example, your recruitment agency).

Osborne Clarke comment that “it is important to note that criminal intent on the part of both the tax evader and the facilitator must be established. There are, therefore, two underlying criminal offences that must be committed in order to hold the corporation liable, although it is not necessary for the offences to be prosecuted or the perpetrators convicted.”

The new rules will have a large impact on recruitment agencies:

  • A recruitment agency can face severe penalties for non-compliance, including unlimited fines and convictions for those who are responsible for the breach in the rules.
  • Recruitment agencies must have internal procedures in place to ensure that encouraging candidates to use tax evasion schemes is completely eradicated.
  • According to Osborne Clarke and reiterated by our affiliates Professional Passport, “the staffing supply chain is under scrutiny by authorities in relation to things like offshore payment schemes, and some aggressive onshore schemes”.
  • If investigated, recruitment agencies must be able to provide proof to authorities that they have carried out an appropriate assessment of their internal operations and their staff have received training to ensure they are educated on the new rules.

Recruitment agencies need to prepare for the legislation changes so that they do not face investigation by HMRC. If your agency is investigated, you will need to be able to prove that you have taken the following steps to ensure your agency is compliant and has not been facilitating tax evasion.

1) Carry out a thorough risk assessment and identify all of the potential breaches that your organisation could unwillingly be responsible for, and found guilty of.

2) Your recruitment agency must ensure the correct proportion of risk-based prevention procedures are in place.

3) Ensure that your recruitment agencies leaders are fully committed to compliance.

4) Carry out adequate due-diligence to ensure your recruitment agency has taken thorough care in its operations.

5) Provide training to all of your employees and especially the consultants. If you have an incentive scheme, it will need to be heavily regulated internally to ensure there are no rule breaches and that all payments are legitimate and recorded.

6) Once you have put the appropriate procedures in place, monitor their effectiveness and make sure you frequently review the processes you have implemented.

Churchill Knight is an industry expert and our dedicated Agency Consultants are up-to-date with the latest legislation. If you would like to arrange a meeting at your premises with one of our highly trained consultants, please give us a call on 01707 671645 or email agency@churchill-knight.co.uk.

Our Agency Consultants would be delighted to meet your employees and discuss any legislation that is of concern. When you add Churchill Knight to your Preferred Supplier List (PSL), you can be assured you will be referring your candidates to a fully compliant payroll provider with no unpleasant complications.

Our team understands that your candidates are your priority, and when you refer them to Churchill Knight, they become ours as well.

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