New Rules on Failure to Prevent Tax Evasion/Avoidance
New rules came into effect on 30th September 2017 that are likely to impact recruitment companies and their relationships with providers.
In summary; the new offence aims to hold corporate bodies liable where it can be shown that they have been involved in the facilitation of tax evasion. This will include any employee recommending providers where there is a reasonable expectation that the correct levels of tax are not being paid.
The onus is on the corporate entity to demonstrate that it has reasonable procedures in place to prevent the offence. This is likely to bring increased pressure on the use of Preferred Supplier Listings with companies that can demonstrate compliance as well as ensuring recruitment consultants operate within the new company guidelines.
As you will see from the overview below a consultant receiving a cash incentive payment for the introduction to a provider is likely to breach the rules in 2 ways:
The receipt of a payment from a provider to a consultant, if not disclosed on the consultant’s tax return, meets the test of tax evasion. As the individual is an employee the corporate body can be held liable for any unpaid taxes unless it can be shown that reasonable steps are in place.
This is likely to mean that any recruiters seeking ‘commission’ from providers will need to move this to a more formal arrangement, likely to be carried out through a company to company relationship.
Recruitment companies must take steps to stop consultants receiving ‘brown envelope’ payments, the largest of these tend to come from what we would consider non-compliant providers that would fall within the scope of these new rules.
Recommending a provider where there is a clear expectation that the worker is benefiting financially as a result of reduced tax charges.
We have seen a number of recruiters starting to select providers based upon the returns they can offer the workers. Those offering the highest returns for the workers get the most business.
What is clear is that ALL providers operate within the same rules and therefore should be returning a similar amount for each worker. Where this is not the case and the returns are greater than expected it will be difficult to mount a defence against these new rules.
Recruiters need to formalise their policies on the provider introductions, preferred supplier listings and commission rebates to stand any chance of mounting a defence.
HMRC enforcement has been active in the sector for months and has considerable intelligence on compliant and non compliant providers and the companies the non-compliant providers have relationships with. If you are one of these you must change your processes prior to the end of September. If not you will need to ensure that all employees are adhering to your policies as the action of an employee can bring the liability to the corporate.
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