In this article we look at the key drivers behind these changing attitudes and how Professional Passport can support you in meeting your obligations and minimising the risks.
Why has the Criminal Finances Act [CFA] brought about such a change?
As we have highlighted in our newsletters there are two key parts to the CFA that could leave recruiters potentially exposed to significant liabilities, both centre around the requirement within the act for companies to have ‘adequate processes’ in place.
The first is provider compliance.
The CFA places obligations on recruitment companies to have adequate processes in place to ensure that the providers they work with, or allow their workers to operate through, are operating compliantly. Where this is not the case the CFA allows any tax shortfalls to be passed back to the recruitment company as a debt.
The second is consultant commissions.
Consultant commissions has been a growing issue in the sector for several years and have, in many cases, provided a platform for the non-compliant providers to promote their offerings. We have seen commissions being offered raised to levels that, in our opinion, are unsustainable. Commissions offered by responsible providers are paid via the HMRC Tax Award Scheme meaning that the basic rate of tax is paid by the provider making the payment. The consultant receiving the money is then obliged to report the additional income on their Self-Assessment Tax Return [SATR].
What we all know is that the majority, if not all, will not be fulfilling their obligation of reporting the additional income. Failing to report the additional income is tax evasion and is likely to attract 100% penalty to any assessed tax liabilities. Consultants seem unaware of these potential risks and liabilities.
With the levels of income we are seeing many successful consultants can be making more through their provider commissions than their income from their main job. At these levels tax liabilities would become significant and could easily be more than a consultant’s annual income.
Consultants also seem unaware that many of the commissions paid under the scheme, and who they are paid to, is being reported back to HMRC.
Now whilst we are formally not aware of any cases being brought there are rumours circulating that action has started. HMRC has increased their compliance and enforcement resources and has an increased focus on our sector which means that it is only a matter of time before these issues start to be picked up.