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Recruiters fear business closure as government targets tax avoidance by “umbrella companies”

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HMRC has intensified its crackdown on exploitation of tax loopholes

Recruitment firms are concerned about potential business closure as the government considers measures to address tax avoidance by ‘umbrella companies,’ according to multinational law firm Pinsent Masons.

The Treasury, HMRC, and the Department for Business & Trade have launched a consultation titled ‘Tackling non-compliance in the umbrella company market,’ which proposes holding recruitment agencies responsible for unpaid taxes if the umbrella companies they work with engage in tax avoidance.

The concern is that this additional financial burden could lead to insolvency for recruitment agencies, as they typically operate with narrow cash flows.

In recent years, HMRC has intensified its crackdown on umbrella companies that exploit tax loopholes. Nearly all of the 46 “named tax avoidance schemes” currently listed on HMRC’s website are associated with umbrella companies.

Some recruiters have failed to conduct proper due diligence on the umbrella companies they engage with. It seems HMRC is now determined to tackle this type of tax avoidance aggressively.

Chris Bryce, Chief Executive at FCSA spoke exclusively to TALiNT International: “FCSA broadly welcomes this consultation and will, of course, be making a submission to government. FCSA has been advocating for regulation of the industry for a long time and we’re pleased to see the government bringing forward proposals. Chris Bryce, FCSA’s Chief Executive said, ”I’ve been working heard with officials and MPs on this and I’m pleased that the consultation is finally out.  The three main options each have their merits but will require careful consideration as they all also give rise to potential issues.”

One suggestion contained in the consultation document is to make recruiters end up as responsible for the correct handling and payment of taxes. FCSA does not believe that this as a good route to do down. The employment and payrolling of temporary workers require skills, systems, and expertise that most recruiters are not expected to have – this is not normally their area of business. Umbrella companies do have the necessary expertise and already provide these services in full compliance with their obligations. Of course, recruiters should carry out due diligence to ensure their suppliers are operating correctly and FCSA Accreditation goes a long way in helping recruiters with that due diligence.

Bryce goes on to say: “FCSA will be consulting with our members, stakeholders, and the wider industry – including workers – to ensure that any legislation brought forward is as effective and workable as possible. Above all, what we want to avoid is another IR35-type situation where the legislation itself is confusing and hampers the contribution made to the UK economy by a well-served flexible and agile workforce. I also believe that for any legislation to be effective, government will have to reconsider its recent shelving of the plans for a Single Enforcement Body.”


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