Following government proposals to clamp down on tax-avoiding offshore Umbrella Companies, the Association of Recruitment Consultancies (ARC) has warned that greater clarity is needed on the rules governing the tax affairs of agency workers in general if confusion is to be avoided.
ARC chair Adrian Marlowe agreed that HMRC was correct to review the rules wherever evidence of unfairness has arisen; however, he also drew attention to the potentially confusing effects of the recent austerity-driven switch of emphasis at the Revenue. HMRC had, for example, long been aware that offshore jurisdictions such as the island of Sark were beyond the scope for employer NI payments. Workers have been employed by Umbrella Companies headquartered in Sark for many years without Revenue investigation, he said, which gave rise to the inference amongst Umbrella Companies based there that the practise was “officially acceptable.”
Mr Marlowe agrees that the practise should now come under renewed scrutiny but warned that HMRC’s tests for determining which forms of employment are acceptable to obtain tax relief are constantly evolving. Citing the practise of off-setting subsistence and travel expenses against tax and NICs as an example – an important means of retaining today’s flexible workforce – he said: “[W]hat was acceptable a year ago may no longer be acceptable despite there having been no new law in the meantime. This leaves agencies and Umbrella employers confused and uncertain of the position, in turn giving rise to the possibility that an agency worker may find net income being affected from one month to the next.”
ARC is now discussing ways to “tidy up” the rules surrounding tax and the temporary workforce with HMRC and the Treasury.