During 2013/14 the HMRC clampdown on tax dodging marked a new high hitting an unparalleled £23.9bn in additional tax revenue – up £3.2bn year on year. This was a result of increased activity to make sure organisations, contractors and individuals pay the taxes they owe. HMRC collected more than £8 billion from large business, over £1billion from criminals and £2.7billion from tackling avoidance schemes in the courts.
With HMRC having a win rate of 80% in its tax cases, the chances of escaping prosecution for non-payment or incorrect payment of tax is a difficult road. So rather than attempting to cheat the system, it is vital for contractors to start taking tax seriously and ensure that the Umbrella company that they work with, either directly or indirectly, is able to demonstrate they pay full income tax and National Insurance contributions.
This is even more important following the HMRC announcement that all workers employed by offshore intermediaries are now subject to UK taxation rules. This could have a longer term effect on contractors who work with international Umbrella organisations and a consideration when developing contractual agreements.
With the Treasury including these recent changes in the Autumn Statement in 2013, as well as the subsequent Budget 2014, Exchequer Secretary to the Treasury, David Gauke MP, said that the HMRC scheme “sends a clear signal – HMRC will pursue those seeking to avoid their responsibilities and will collect the taxes that are due.”
This record gain by the HMRC demonstrates the success of strengthening the existing legislation rather than create new rules to enforce the clampdown. However, it is inevitable that these new processes will need to be put in place to ensure compliance by Umbrella companies, contractors and organisations working within the employment sector.
Under the revised proposals, it is the employment agency – rather than the end user – that will now be ultimately responsible for ensuring that all workers employed offshore pay the correct amount of income tax and National Insurance. So whilst the success rate of the HMRC continues, contractors need to ensure that they have the right recruitment relationships in place to avoid being caught out by income tax or National Insurance issues.
However, employment agencies should also be wary of this HMRC scheme as they are likely to be the ones who will have to process the PAYE and National Insurance contributions, which is not only going to be an extra cost to them but also an increased administrative burden.
What can make a difference to contractors and employment agencies alike is liaising with organisations like One Click Umbrella, who can put in place online automated solutions, which can take control of the PAYE and National Insurance contributions without any hassle. Thus reducing the risk of non-payment or wrong payment, especially when working with offshore Umbrella groups, and maintaining positive relationships with contractual partners, the HMRC and employment agencies.