The risk management and compliance advisory organisation Professional Passport has declined to approve a new payment intermediary model under which service providers supply ‘self-employed workers’ to recruitment agencies via a limited company.

The arrangement, which has grown significantly since the Revenue clampdown on ‘payday by payday’ tax relief models, allows service providers to supply workers on a self-employed basis via a contract between the recruiter and a provider-created limited company. Recruitment agencies do not engage self-employed workers directly, as they are not permitted to pay them gross and they do not wish to become liable for any unpaid taxes.

According to Professional Passport MD Crawford Temple, however, the new arrangement may well leave recruiters in exactly this position. Self-employed workers supplied under the arrangement are not subject to the national minimum wage and the schemes are seen by some recruiters as an instantaneous, ready-made replacement for the payday by payday model.

Mr Crawford highlighted moral issues around the exploitation of vulnerable workers, as the arrangement disentitles them to universal credit and may even cause them to lose state pension benefits. Even setting these concerns aside, the new arrangements pose a higher risk of non-compliance than the ones they are replacing, he added.

HMRC has made it clear in discussions with Mr Temple that it sees many of the new arrangements as aggressive and would seek to challenge them.

Professional Passport considers the arrangements “very high risk” for recruiters and has therefore decided not to approve “any providers that promote these as part of their service offerings to contractors.”

An implication for recruiters is that contracting with fully compliant Umbrella Companies represents a far safer option.

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