On
the 6th April 2014 the UK Government introduced new legislation
regarding tax and National Insurance in a bid to deter PAYE and NIC avoidance
schemes. The new legislation addresses both offshore and onshore
intermediaries; however, it will be the effect of the changes made to the
former that are set to impact UK based businesses the hardest.
What are HMRC doing?
In
order for HMRC to more easily reclaim estimated 3 billion pounds of unpaid
taxes, liability for unpaid tax and NIC contributions by contract workers now
lies with the last UK based business in the contractual supply chain (known as
Intermediary 1) as opposed to being the responsibility of the contractor or
their umbrella company (as was the case previously). The reality of this is
that businesses across the UK will now be wholly
and immediately responsible for the
repayment of tens of thousands of pounds in unpaid tax and National Insurance,
which may have accumulated over many years.
Furthermore,
businesses that find themselves in the position of ‘Intermediary 1’ will also
have to account for every offshore worker who is not already accounted for by
HMRC by submitting an electronic report every quarter. Failure to provide the
correct information in these reports or to submit the report at all will result
in a penalty being administered by HMRC.
Unfortunately,
if you find that your company is in the position of Intermediary 1, the supply
chain between you, your contractor and their umbrella company is often
extremely long and complex rendering it very difficult (if not impossible) to
carry out due diligence. Furthermore, unless you already have thorough and
efficient processes in place, reporting on all of your offshore workers will
require a significant amount of work in order to meet the scale of information
required by HMRC.
In
addition to the changes being made to offshore intermediaries, the new
legislation is also cracking down on the issue of false self employment. Clear
differentiation now needs to be made between self-employed and employed
workers, with liability now being placed on the entire supply chain in order to
ensure that there is no intended evasion of employment related payments by
falsely self-employed individuals. The reality is that if you, as an employer,
do not conduct due diligence to ensure that your workforce are not party to
such a scheme, then you will be deemed as complicit in tax evasion and will be
prosecuted accordingly.
What should you and your business do?
- Undertake due diligence to ensure that umbrella companies and offshore PSCs can demonstrate compliance with the NIC and tax deduction requirements and that all information provided by them is correct. Regarding your contingent workforce, you’ll need to know the answers to questions such as: What does your supply chain look like? In what areas of the business are they providing service? How much are they being paid?
- Remove yourself from being in the position of ‘Intermediary 1’ by utilising the services of a trusted recruitment partner, which will prevent you from becoming the last UK business in the contractual supply chain and will ultimately protect you from being held accountable for anything that may have occurred further up the supply chain.
- Reduce the burden of thorough reporting by working with a recruitment partner. Resource Management are already adept at gathering and providing the scale of reporting required by the HMRC. For this reason, we will be able to provide reports on your temporary staff far more efficiently and accurately than you will be able to if you do not already have such processes in place.
