In IR35

The Freelancer and Contractor Services Association (FCSA) has responded to revelations in The Times last week that 20,919 contracting and freelancing professionals, including IT professionals and NHS locums, who used tax avoidance schemes that disguised their true earnings for years, have been instructed by HMRC to hand over at least £1 billion in unpaid tax.

The FCSA, Britain’s largest Umbrella Company trade association and leading professional body for raising standards and improving supply chain compliance in the temporary labour market, explains that freelancers involved in such schemes should approach HMRC urgently to negotiate a settlement. Failure to do so before 30 September may result in huge financial penalties.

CEO, Julia Kermode, said that companies are criminally liable under the Criminal Finances Act (FCA) if they do not block tax evasion by their members of staff or associates. Prosecution under the CFA can result in criminal conviction and unlimited fines.

Drawing attention to the upsurge of tax avoidance schemes, often facilitated by rogue, off-shore Umbrella Companies, which followed IR35 changes in the public sector, Ms Kermode underlined the necessity for recruiters to ensure that their supply chain is not allowing tax avoidance at any point. Failure to do so could end with damage to a recruitment business’s good name, as well as injuring relationships with candidates and clients.

She cautioned recruiters to ask three questions of every supplier on their Preferred Supplier List (PSL):

  1. Does the company you pay also pay your workers?
  2. Are you certain they are not contracting with any offshore entity?
  3. Are you certain that this supplier is paying the correct amount of PAYE tax, VAT, and NI to the Revenue?

If the answer to any of these questions is no, the recruiter must tighten its PSL without delay.

Ms Kermode advised that, since things are sometimes not what they appear, recruiters would do best to select a member of a professional accredited body to undertake some essential compliance checks.

Recruiters need to make sure that all Umbrella Companies included on their PSLs are compliant with the law and provide the following:

  • Every penny of a contractor’s gross pay should be made through Real Time Information payroll
  • Full payment of national minimum wage rates as defined by law
  • Statutory employment benefits, such as paid holiday, sick pay, and maternity or paternity pay
  • An overarching contract of employment
  • Guaranteed working hours
  • Access to a workplace pension
  • All statutory employment rights

Finally, alarm bells should ring when expenses allowances are too good to be true as they may not conform to HMRC legislation and guidance.

 

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