It may be tempting to refer your candidates’ to a payroll provider that is promoting exciting incentives and exceptional take-home pay. However, you must not be fooled by these organisations who are offering the world because they are probably an offshore tax avoidance scheme. If recruitment agencies are found to be referring their candidates to such schemes, HMRC will not hesitate to hand out substantial fines that could bankrupt the business and prison sentences to the Directors. Here is some advice on what to look out for when assessing a payroll provider.
A background to offshore schemes
Offshore intermediaries take advantage of complicated loopholes in the United Kingdom (UK) tax system. By sending the contractors’ money offshore to a typical tax-haven country such as the Isle of Man or Bermuda, companies are bypassing UK tax laws. As a result, the contractors who use offshore schemes are receiving up to 90 percent of their wages because they are paying considerably less or in some cases no tax and National Insurance Contributions (NICs) at all.
Whilst offshore schemes are not technically illegal, HMRC has made it clear they are fully prepared to backdate any tax bills where they believe a contractor has deliberately and unethically underpaid their tax and NICs. This could financially ruin contractors who could be required to pay back thousands of pounds without warning and without a monthly payment plan.
Recruitment agencies must also be extra vigilant when referring their candidates to payroll providers. In September 2017, the Criminal Finances Act came into effect and it perfectly showcases HMRC’s desire to eliminate the facilitation of tax evasion by recruitment agencies. They confirmed they will be handing out severe penalties for non-compliance, including unlimited fines and custodial sentences for Managers and Directors.
Spotting non-compliant payroll schemes
It is imperative that every consultant at your recruitment agency refers their candidates to compliant payroll providers. Here are some important factors to consider when deciding which contractor accountants and umbrella companies to put on your agency’s Preferred Supplier List (PSL).
Are they accredited by respectable bodies?
It is easy for a payroll provider to say they are compliant, but are they accredited by UK based organisations who regularly carry out audits to ensure they are abiding by the appropriate laws? Professional Passport is a leading body who promote compliance in the UK, and their “processes meet or exceed the standards required by all government departments.”
What incentives are they offering?
Receiving incentives for referring a candidate to a payroll provider can cause complications. The tax on each incentive must be paid by the payroll provider as part of the Taxed Award Scheme, or the tax must be paid by the employee who received the incentive via the completion of a personal tax return. Make sure every incentive is documented and the tax is paid so that there is no risk of non-compliance with the Bribery Act 2011.
Don’t forget - if a payroll provider is offering incredibly generous incentives that are noticeably higher than everyone else in the market, alarm bells should be ringing.
How much pay will your candidates be taking home?
Take-home pay is one of the easiest ways to spot a non-compliant payroll provider. If all UK tax laws and legislations are applied, a contractor will typically retain between 70 and 80 percent of their pay when operating through a limited company and 60 to 70 percent of their pay when using an umbrella company*. There are many companies online who claim to be able to offer contractors over 90 percent pay retention. These are unethical and are undoubtedly offshore schemes that could land your recruitment agency and your candidates in serious trouble with HMRC.
What is their policy on claiming expenses?
Claiming expenses through an umbrella company is now a rarity because of the introduction of Supervision, Direction and Control back in 2016. Therefore, if an umbrella company is claiming to offer all contractors their expenses, you should be concerned.
If your candidates are able to claim expenses, each claim must be done officially and with the correct procedures in place (for example, an expense can only be claimed if the correct receipt is present).
Do they have a 100% compliance record with HMRC?
If a provider has previously been reprimanded by HMRC because of non-compliance, you should be cautious and look elsewhere. The butterfly effect of working with a non-compliant payroll provider, or one who has a bad reputation, could be devastating for your agency.
Where are they based?
This may sound fairly obvious, but make sure the payroll providers on your recruitment agency’s PSL are based in the United Kingdom. If it is difficult to find their address, they may be trying to disguise the fact they are based offshore and in a well-known tax haven. Don’t be afraid to contact them and find out the information you need.
Is their workforce knowledgeable?
There is a lot of legislation affecting recruitment agencies and the self-employed in the UK. A majority of this legislation is complex and therefore, you will want to make sure the companies you are referring to are up-to-date with it all and can provide your consultants and candidates with guidance.
Are they partnered with reputable companies in the UK?
As well as payroll, your candidates may require additional services such as insurance. Whilst not every payroll provider will be able to provide this directly, they should be partnered with some well-respected and trustworthy UK based companies who can help.
Compliance and peace of mind
Churchill Knight & Associates Ltd has never promoted or offered a tax avoidance scheme and we are proud of our 100 percent compliance record with HMRC. Our broad range of services includes contractor accountancy, PAYE umbrella, CIS, sole trader accountancy and a dedicated personal tax team.
Our Agency Team has an excellent relationship with hundreds of recruitment agencies and we are finding ourselves on an ever-growing list of PSL’s. This is due to our commitment to provide exceptional customer services for both your consultants and your candidates. We understand that your candidates are your priority and when you refer them to one of our services, they become our priority too.
If you would like to refer a candidate to our services, please complete our short form here. Alternatively, you can arrange for one of our Account Managers to visit your agency by calling 01707 671645 or by emailing firstname.lastname@example.org.
*These figures are only a rough guide and take home pay will vary between contractors based on personal circumstances, rate of pay, allowable expenses and tax planning. For more information, please contact us.
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