HMRC’s new legislation on temporary workers went live on 6th April 2014, bringing with it significant implications for recruitment agencies and the employment supply chain more generally.
From that date, payment for all temporary workers, including those who were previously classified as self-employed sub-contractors, must be payrolled if the workers concerned personally carry out work or are involved in the provision of services and there is supervision, direction and control. That means they must have employee NICs (at 12 and 2 per cent) and tax deducted at source.
The employment agency also became liable for employer NICs (at 13.8 per cent) as of 6th April. Effectively, any tax liability that has not been deducted at source, through PAYE, is now the personal debt of the recruitment company.
Employment intermediaries: Umbrella Companies
HMRC now requires recruiters to demonstrate why they have engaged workers who are not on a PAYE payroll, although recruiters who choose to engage workers through Umbrella Companies will not be required to consider the issues of control, direction and supervision. However, the issues of liability and responsibility will not be sufficiently addressed if a recruiter simply states that they have engaged a worker through his or her own Personal Service Company (PSC) or an Umbrella Company. It is vital for recruiters to be clear that Umbrella Companies simply aren’t all the same: to be safe, they will need to know that five key conditions are met:
A: That the Umbrella Company concerned is based in the UK (if so, it will be compliant with UK tax requirements and far less of a risk than offshore alternatives).
B: That all of the workers it supplies are employed, with full employment status and employment rights.
C: That the Umbrella Company concerned does not provide its workers with alternative models for payment, such as self-employment (this will open the agency up to liability for tax and NICs).
D: That the Umbrella Company is a pure PAYE Umbrella Service.
In short, recruiters must thoroughly understand – and thoroughly trust – their supply chain if they wish to avoid liability for unpaid tax.
Personal service companies
The key questions recruiters need to ask when engaging workers via PSCs are as follows:
A: Are they confident that the PSC concerned is making accurate and timely RTI submissions?
B: Can they provide evidence to HMRC that the worker is legitimately working via a limited company and is in business of their own volition?
C: Unless agencies have robust evidence of both of these conditions, they will be no less at risk of incurring tax liabilities than if the workers concerned were self-employed.
There is now a new onus on recruitment agencies to:
A: Familiarise themselves with their Service Providers sufficiently to have full trust in them.
B: Cultivate relationships of transparency with Service Providers so that evidence of compliance is fully demonstrable to HMRC.
C: Consider shortening preferred or approved supplier lists to ensure only the fully compliant are included.
D: Know their supply chain in depth.
Provided these conditions are met and are fully demonstrable to HMRC if the need arises, recruiters can protect themselves from unwelcome liabilities.