The necessity of using reputable, properly audited and fully compliant Umbrella Companies has now become of critical importance to recruiters if they wish to avoid the prospect of unlimited fines, criminal convictions and irreparable reputational damage. This is thanks to the implementation of the Criminal Finances Act 2017, which comes into effect on 30th September.

This warning comes from recruitment law experts at Lawspeed, who explained this week that provisions contained within sections 44-52 of the new legislation will impose criminal liability on recruitment companies merely for not taking steps to prevent tax evasion offences. The provisions apply to all companies and partnerships, whether large, medium or small.

Recruiters who assume that the new rules are not relevant to them are making a serious error of judgement, Lawspeed warns. If they run a payroll or use a payroll provider (Umbrella Company), then they are potentially at risk of committing a criminal “tax facilitation” offence unless they can show that they have taken precautions to ensure that the providers they use are fully compliant.

Section 45 of the Criminal Finances Act specifies a new offence of “failure to prevent facilitation of UK tax evasion offences,” the definitions of which are “cheating the public revenue” or “being knowingly concerned in (or taking steps with a view to) the fraudulent evasion of tax.”

“Cheating the public revenue” is unusual in that it is not set out in legislation but is a more loosely defined offence that has evolved over many centuries under common law. The UK Government sometimes uses it as a “catch-all” when it cannot prosecute under a specific statutory offence or because it wishes to send a deterrent message, as the maximum sentences are appreciably higher.

Another new offence of direct relevance to employment intermediaries is set out in Section 46: “failure to prevent facilitation of tax evasion offences.” This effectively criminalises a failure to act rather than a specific action.

Because definitions are unclear — and because there is no clear line of distinction between tax avoidance and tax evasion — Lawspeed is warning recruiters that they may inadvertently find themselves under prosecution. Many apparently legal anti-avoidance schemes have recently been retrospectively declared illegal, placing well-intentioned businesses in the line of fire.

Companies can now find themselves being prosecuted for taking no steps to address the possibility of an evasion or cheating event. This makes it crucial for recruiters to partner with reputable, compliant and approved Umbrella Company providers only.

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