Are you liable for the unpaid tax of your contingent workforce?

With what seems like monthly changes in legislation relating to contract workers, it’s important to understand where to focus your attention and where your financial exposure may be. Every day we see IR35 and Umbrella companies in the news, with reports of upcoming legislative changes or rumours of what’s to come. But where does this leave your business when hiring contract labour?

The Criminal Finance Act 2017

Before diving into specific forms of contract worker engagement, the Criminal Finance Act introduced the concept of ‘Failure to prevent tax evasion’, meaning if a company is found to have failed to prevent the facilitation of tax evasion by an employee, agent, or anyone performing services for or on behalf of the company, the company can be held liable.

With this transfer of liability, no matter how you engage your workers it’s important to utilise a compliant supply chain and actively demonstrate your compliance.

IR35 and Personal Service Companies (LTDs)

For those unaware of IR35, check out our guide (link here), however, it’s the Government asking companies to determine the tax status of their workers. If you engage a worker via an LTD company (known as a Personal Service Company), you need to accurately assess their tax status. Get this wrong, and you may be liable for unpaid tax.

Umbrella’s

Umbrella companies operate PAYE pay for over half a million workers in the UK each week (see our guide to Umbrella’s here). Whilst there are many compliant providers out there, many operate tax avoidance schemes so workers either receive more take-home pay or the Umbrella’s pocket this for themselves.

The UK Government are proposing further measures which set more due diligence, more administration and collection of unpaid tax from the labour supply chain (including end-clients). That’s on top of the Criminal Finance Act powers!

Self Employed 

Self-employed, where a worker isn’t engaged via the above methods and is paid gross pay (no deduction of tax or National Insurance), is also a tricky one. The HMRC uses a test called SDC (Supervision, Direction and Control). If a worker is subject to supervision, direction or control by any person then it indicates more of an employment relationship and therefore taxes should be deducted. As a result of this, you’ll need to be certain there is an absence of supervision, direction or control or face potential liability.

Link to the HMRC’s SDC guidance here https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm2055

Can we help?

The good news is compliance can be simple. As experts in all things temporary workers and payment methods, we offer outsourced compliance services alongside the provision of temporary workers through compliant methods so you can sleep easy.