HMRC Employer Bulletin: October 2021

In October, HMRC released their updated employer bulletin, detailing important updates and information on a range of topics including tax changes for health & social care, reporting Christmas PAYE, and Universal Credit. Here’s everything you need to know.

HMRC’s most recent employer bulletin provided a range of updates covering topics that impact tax and PAYE in the construction sector that as a hirer or recruitment agency in the field, you need to be aware of. The most important of these included new information regarding follow-up information on the implementation of IR35 (off-payroll working rules), and new guidance for businesses using temporary workers – including warnings regarding working with mini-Umbrella companies and ensuring supply chain due diligence.

In this article, Tim Hunt, Strategic Planning and Sales Director at Crest Plus, explains the updates and how we can help your recruitment business and clients remain compliant.

 

Off-payroll working rules (IR35)

Since the implementation of the off-payroll reforms in April 2021, HMRC has continued to provide support to help businesses and recruitment organisations comply with the rules.

In their October bulletin HMRC have summarised their work with stakeholders in the construction and transport sectors to provide these customers with extra support. They have shared some helpful factsheets for the construction sector here, but don’t hesitate to get in touch with our agency support team for more information or support with the ongoing management of IR35 assessments and compliance.

At Crest Plus we’re experts in all aspects of CIS and employment status determination compliance. Additionally as a Chartered Accountant with over 14 years of experience specialising in the sector including having been a board member of the FCSA for many years, you can be confident the team at Crest Plus have the detailed knowledge to support you with all your compliance-related queries.

 

New guidance for businesses using temporary workers

Since many hiring organisations work with recruitment agencies who engage Umbrella companies, HMRC is now advising all businesses using temporary workers, no matter their sector, to familiarise themselves with the most recent guidance to protect themselves from getting caught up with non-compliant Umbrellas operating a range of fraudulent or non-compliant schemes, including:

• Mini-umbrella company fraud (this abuses both the VAT Flat Rate Scheme and the Employment Allowance and presents an organised crime threat to the UK Exchequer).
• Payroll fraud (involving an Umbrella company that fails to pay the Income Tax and National Insurance contributions they deduct from a worker’s wage to HMRC).
• Disguised remuneration schemes (non-compliant schemes which try to avoid the need to deduct Income Tax and National Insurance that would typically be due under PAYE on workers’ payments).

 

Disguised remuneration schemes/Tax avoidance

What is disguised remuneration?

One of the main topics of HMRC’s update last month was disguised remuneration schemes. In a disguised remuneration scheme, non-compliant Umbrella companies deliberately describe taxable earnings received by a worker as something else that is not taxable, such as a bonus, fraudulent or non-genuine expenses, salary advance, or loan. This allows the worker to receive untaxed payments, therefore fraudulently increasing their take-home pay.

HMRC has successfully challenged many of these cases in courts and tribunals, demonstrating their eagerness to clamp down on such schemes that do not comply with current law.

 

How is your business impacted?

HMRC has made it clear that it is a business’s responsibility to understand how their workers are engaged, who pays them, and how they’re paid – this is applicable for both clients and recruitment agencies working with Umbrella companies. Plus, if you’re a recruiter, you must also supply your workers with a key information document before agreeing on contractual terms to ensure their rights are protected – we can help with this.

If your business works with a temporary worker employed through a non-compliant Umbrella company operating a tax avoidance scheme, you and your workers are vulnerable to lengthy tax compliance checks, tax liabilities and penalties, and as a result considerable reputational damage.

HMRC has made it clear you may also incur a penalty for being what they term ‘an enabler of tax avoidance’. This penalty applies to anyone who designs, markets, sells, manages, or otherwise enables or allows the use of abusive tax avoidance arrangements that are later defeated by HMRC. By entering into a contract and making payments to a non-compliant Umbrella company, you may be seen to be enabling the tax avoidance arrangement, even if you were unaware of the fraudulent schemes the umbrella was operating.

If you’re found guilty of enabling such schemes, the penalty incurred will be 100% of the fees receivable in consideration for any actions taken by you that enabled the arrangements. Plus, if you receive such a penalty, HMRC may publish your details, identifying you as an enabler of defeated tax avoidance.

It is, therefore, vital that you take this responsibility seriously to protect yourself against any liability, penalties, and reputational damage that can be incurred from working with a non-compliant Umbrella company.

 

How to protect your business?

There are various steps you can take to ensure you’re only engaging with compliant umbrella companies.

1. Get to know the warning signs
   If you notice any of the following warning signs, this should prompt immediate further investigation into the Umbrella company and how it operates:
   • The Umbrella company is based offshore (Under the Offshore employment intermediaries rules, you’re responsible for operating PAYE on payments, including Income Tax and National Insurance, made to an offshore Umbrella company worker if you’re an agency placing a worker with a hirer or a hirer where there is no UK-based agency in the supply chain. Some offshore umbrella companies try to hide the fact that they’re operating offshore by using a UK based company to work with recruitment agencies. If this turns out to be the case, you may be responsible for any unpaid Income Tax and National Insurance contributions resulting from the use of a tax avoidance scheme, even if you’re unaware there is an offshore Umbrella in the supply chain).
   • The Umbrella company is offering you (the recruiter or hiring organisation) unjustified financial incentives for working with them.
   • The Umbrella company is offering workers increased take-home pay (in reality, all Umbrella companies should offer the same levels of take-home pay since the basic rate of Income Tax is 20% and most people will pay National Insurance on top of that. So, any company offering 80% or higher take-home pay is likely to be operating non-compliantly).
2. Contractual care recommended by HMRC
   Hirers: If you’re a hiring organisation, you could add a clause into contracts that require your authorisation before an agency can sub-contract a worker to a third party. This adds an extra layer of protection and compliance checks for all parties, ensuring more transparency regarding who is involved in the supply chain and the details of any Umbrella companies used.Agencies: If you’re an agency, you can add various clauses into your contract with Umbrella companies requiring:
   • they provide you with payslips for a specific named worker (chosen by you) upon request
   • they provide evidence of PAYE returns filed and payments made to HMRC
   • they seek your authorisation before further sub-contracting to a third party, even one within their own group.
3. Ongoing checks
   We recommend that you regularly request payslips from any Umbrella companies you engage with to conduct sample checks. The best advice for this is to request payslips for specific workers chosen by you and where possible cross-reference these with payslips requested from the workers themselves to ensure they’re the same. This kind of detailed sample check should be carried out regularly to allow you to confirm that PAYE is being operated correctly on the amounts being paid to workers.
4. Check Companies House
   Another way to help reduce your risk of using non-compliant Umbrella companies is to check their details and returns filed with Companies House to ensure details such as the company’s financial position, location, and trading history are consistent with what you’ve been told.
5. Education
   Educate your workers by sharing information with them about compliance and tax avoidance schemes. Our expert compliance team are happy to offer compliance training for your consultants and employees to ensure your entire organisation can recognise the warning signs of non-compliance and minimise your risk of engaging with fraudulent companies.

 

Crest Plus Umbrella is FCSA-accredited and we provide transparent pay explanations to contractors before they sign up, meaning all members of the supply chain can have total peace of mind we’re acting compliantly.

And, as part of our dedication to maintaining high standards of compliance and transparency throughout the supply chain, we offer free health checks of your own processes to ensure you’re doing all you can to manage your risks effectively. Feel free to get in touch with our friendly agency support team on 01244 684700 for help and advice on supporting you in managing your compliance responsibilities.