We hate to say we told you so….but we did say that the “Offshore Employment Intermediaries” legislation had the potential to cause plucking carnage (blog link here). As one of only three UK umbrella companies involved in the consultation process (see page 21 of http://ow.ly/pUvue), you might say that we had a better view than most as to what lay ahead (but then again you might just ask why only three out of the 100+ umbrella companies operating in the UK took an interest in this massively important piece of legislation!).
Whilst we hit the nail pretty firmly on the head in our “plucking carnage” blog back in early September, the recently issued “Summary of Responses” released by HMRC on 14th October 2013 did offer some clarification, not only of the criticisms originally levied at the government’s original proposals, but also as to how HMRC would respond.
The Basics of what YOU need to know …
The Original Proposal
The government originally proposed that the offshore employer would be responsible for accounting for the NI and tax of the workers it placed in the UK. In instances where the Offshore employer defaulted on this responsibility, the liability would pass to “Intermediary “1 (the recruitment agency), or the end user (client) in instances where there wasn’t an “Intermediary 1” present. To assist enforcement, intermediaries would need to collate information about how users (candidates) they placed were being paid and report to HMRC on a quarterly basis information about the workers that are employed offshore.
Responses to the Original Proposal
During the consultation process, two general concerns were raised regarding the government’s original proposal:
- Offshore employers sit outside UK jurisdiction so might be encouraged to simply default and pass on the liability.
- The record keeping and reporting would place a heavy additional administrative burden on all businesses within the employment chain.
Government Response: The Revised Proposal
- In response to the concern about offshore employers simply defaulting on their responsibility and passing on the liability, the government has revised its proposal such that liability will not move. Unfortunately for the recruitment industry, this is only on the basis that the liability will now rest “wholly and immediately” with Intermediary 1.
To quote directly from the HMRC document:
“The Government has evaluated the role of employment businesses and agencies, and concluded that it is reasonable to expect employment businesses and agencies to undertake due diligence. Their role is supplying temporary labour to businesses and the Government believes that it is reasonable for the end client to expect that the appropriate amount of tax and NICs has been paid in respect of those workers. This is why obligations will fall immediately and wholly to Intermediary 1…” (3.17 Offshore Employment Intermediaries: Summary of Responses 14 October 2013)
- In response to the concern to the extra administrative burden, the government notes that the revision whereby Intermediary 1 is “wholly and immediately responsible for accounting for tax and NI obligations of workers engaged offshore employer actually removes most businesses in the chain from the requirement to record and report information. Intermediary 1 will still need to report and record the information, of course, but this will be done through RTI and since a large proportion of the information that would need to be included is already required by other government departments, there is little in the way of extra administrative burden. And in any case, it is unrealistic to expect that tax avoidance can be tackled without imposing some level of administrative checks!
The Basics of what YOU need to do …
As the above covers it’s got a little worse for Intermediary 1 (agency), as you become wholly liable for the tax and NIC’s for any candidate that is employed via an offshore solution!
So the simple answer is – Don’t let any of your candidates utilise an offshore solution.
Easier said than done unfortunately, as you now need to put a robust due diligence strategy in place.
So what would a robust due diligence strategy look like? Of course, there’s more than one way to skin a cat, but essentially it all boils down to three key components: gathering information, reviewing the information gathered, and, if necessary, mitigating any potential liability away from the agency via the implementation of alternative, preferred supplier relationships.
Gathering of information will become an essential step in the agencies on-boarding process. Agencies will need to know the details of the payroll provider that the candidate currently has a relationship with. Our advice to the agency would be to gather this information at the earliest possible opportunity, ideally before the candidate has been put forward for a role (the last thing the agency will want is for a candidate to interview and be offered the role, only to then reject it if the agency has concerns over their payroll provider and the candidate is refusing to use an alternative, compliant solution!).
A real culture change at many agencies – will involve you taking a firm stand and refusing to engage with candidates that choose to work with offshore scheme providers. It will no longer be the case of letting the candidate slip though the net for commercial reasons to get that placement!
As with most legislation that gets introduced, this will help sort the wheat from the chaff and as such should be welcomed by providers that are already operating correctly.
It goes without saying Liberty Bishop are here to help you and here’s How?
We will be running a FREE seminar shortly with key speakers – To register your interest please email me with the subject heading ‘Seminar interest’ to [email protected]ybishop.co.uk