With the rising cost of living and the contracting market not yet at the level we would hope to see, individuals and organisations are feeling pressure to engage with riskier contractor engagement strategies than usual.
Unfortunately the umbrella market is littered with aggressive tax models posing as legitimate engagement options for contractors who then push their consultants to engage these services.
HMRC have been highlighting some of these with the latest two being Acacia Resourcing Servicing Limited and Marquee Ltd. Their list has an apparent bias towards Loan Charge Schemes and Offshore Schemes but there are some variations in the detail.
Although recently revealed that HMRC must remove these names after 12 months on the list, it at least demonstrates that they are not blind to what is being offered to agencies and contractors.
Mini-Umbrella
At the same time, the VAT teams’ Fraud Investigation Service is pursuing recruiters who engage Mini-Umbrella Companies (MUC) and disallowing ALL the input VAT from the invoices paid to the MUC. Very few recruiters have the cash on hand to settle a bill representing 20% of their entire payroll value for the whole period they engaged the MUC with a further 30% of that in penalties.
Even more concerning for recruiters caught up in this, HMRC have been comfortable utilising their debt-transfer powers to move a portion of this liability (often the penalties) onto the directors themselves.
Some recruiters have stated in the past that they are comfortable engaging with MUC as should the HMRC ever catch up with them, they will simply “phoenix” the business. With the penalties being transferred to the director themselves, there is no simple escape from the liabilities.
IR35
The candidate shortage has resulted in one benefit with smaller end hirers being more open to individualised IR35 assessments, in many places supported by our IR35 Protect service.
Even government organisations like DEFRA have fallen foul of trusting their entire assessment process to the CEST tool only to find themselves saddled with significant penalties so the appetite for professional guidance has never been higher.
Our IR35 consultants have joined a number of meetings already this year with agency partners and end-hirers to help all parties navigate the legislation and support them to access the highly skilled workforce firewalled behind PSC engagement.
Poor advice has flooded into this environment with recruiters being encouraged to allow risky PSC engagement. In some cases, providers claim that simple changes like ensuring the contractors PSC has a name that doesn’t include the contractors own name is enough to keep them outside of IR35.
In others, organisations push agencies to allow them to make gross payments to contractors Ltd Companies on the basis that by being the fee-payer, the intermediary is shielding the agency from liability. A guarantee of this sort is only as valuable as the intermediary’s own business though, as once the tax bill plus penalties arrive these smaller intermediaries can simply phoenix leaving the HMRC to transfer the debt back up the contract chain to the Relevant Person.
The Relevant Person is defined in s688AA ITEPA 2003 essentially as either the end-hirer or the organisation one step below the end-hirer in the contract chain. In short, you or your client.
We appreciate the challenges placed on recruiters who seek to engage only legitimate, compliant payroll solutions and thank our agency partners for their ongoing commitment to legal compliance and the long-term thinking it represents.
For those recruiters who have found themselves caught up in these schemes, we offer a fully confidential service to review your current position and structure an exit strategy that is least disruptive to your workforce.
The longer you maintain tax-avoidance relationships, the larger the penalties involved and more likely you are to be identified by the HMRC as an introducer.
Symptoms of aggressive scheme promoters:
• Directors with a history of phoenixing companies
• Directors with hundreds of small companies under them
• Companies registered offshore e.g Philippines & India, Isle of Man
• Payslips for an agency using different PAYE references
• So called FREE schemes – i.e no margin charged to the worker
• High rebates to agencies
• High take home pays promised
For a confidential discussion on the subject, please contact us using the details below and speak to one of our specialists:
Call us: 0333 121 2001
Email us: enquiries@numbermill.co.uk
