Any payment model which has the words 'tax avoidance' associated with it, is one that should set the red flags waving furiously for any bona fide recruiter. Such is the extent of the problem that it is costing the Treasury some £100 million in lost earnings each year. So it comes as no surprise that the Government is now attempting to take a tough stance against such practices. But what does this crackdown mean to recruiters?
In April the Offshore employment intermediaries legislation will come into force. Its aim is to close the loophole which currently exists whereby a worker who lives and works in the UK is employed by a company based overseas which does not fall under the remit of UK tax laws, and as such is not accountable for them. This in turn means that the worker avoids paying PAYE tax and National Insurance Contributions (NIC).
However, under this new legislation, contractors who have been in receipt of income from an offshore Umbrella will now be first in line for a retrospective claw-back of all unpaid tax – dating back as far as 7 years. Some estimates suggest that as many as 100,000 UK-based contractors could face a 7-year backdated tax bill.
For recruiters, the situation could be worse. By using an offshore Umbrella to manage the payroll of your workers, there is the suggestion that the transfer of funds to your 'recommended' offshore supplier under a PSL or ASL agreement is bordering on 'money laundering' - the consequences of which could be severe.
Indeed, the legislation will now transfer responsibility for tax and NIC straight to the recruiter rather than the contractor. So what should recruiters do?
First it is important to review your preferred Umbrella partners and your relationship with them – are they UK-mainland based or are they located offshore? Why are you using them in the first place – did you ask for recommendations, were they referred to you, or was it simply a case they offered good commissions and the prospect of your contractors getting ‘85% Take Home’, and sometimes even more?
Second, you need to ensure that your Umbrella partners are fully HMRC compliant and if they're not, then it's time to do your homework and find one that is - otherwise you may find a hefty backdated tax bill winging its way to you in the coming months.
One Click Umbrella welcomes the Government's tough stance against unethical offshore Umbrella companies. We are based in Warrington and all of our contractor payments are made from a UK bank account where the required PAYE and National Insurance Contributions deductions are calculated using HMRC-approved payroll systems. We are members of All Umbrella Companies Are Equal and the Institute of Recruiters (IOR) to help promote best practice in our industry.
If you have any concerns or questions, please do not hesitate to contact us at any time.