Criminal Finance Act 2017

As of the 30th September 2017, the Criminal Finance Act will make it a criminal offence for failing to prevent the facilitation of tax evasion.

This follows on from the ‘Panama Papers’ and other high profile tax evasion scandals and means that businesses will be held responsible for the actions of their employees or associates, even if senior management were unaware.

Overview of how the new legislation will work for the staffing industry:

· An incident of tax evasion is committed by a tax payer (e.g. a contractor, payroll company or recruitment consultant receiving a non-declared incentive or gift)

· That offence was facilitated by a third party (e.g. a recruitment consultant who made a recommendation)

· This third party is associated with the over-arching corporation (e.g. the recruitment consultant’s employer)

What are the implications for the recruitment sector?

Clearly, if no tax evasion has taken place, then the corporation (in this case the recruitment company) has nothing to worry about. However, with public opinion on tax evasion shifting, prosecutors are likely to take a dim view of any case brought forward.

This is of particular interest to the recruitment industry as many consultants refer workers to a variety of payment vehicles, not all of which may be acting compliantly. Where steps have been taken to mitigate the facilitation of tax evasion through the use of risk assessments, internal policies and staff training, it’s unlikely the referral will fall foul as an offence. However, where it is known that the referral has taken place for the purpose of the contractor evading tax, it is likely to be considered as facilitation.

It is more important than ever that recruitment businesses look at their supply chain and ensure checks and regular monitoring are carried out. A PSL of vetted umbrella companies is the only way to ensure you are operating within the law and limiting the risks associated with this new legislation.

With the recent changes in Travel and Subsistence and IR35, it is inevitable that temporary workers seek new ‘schemes’ and many are popping up, from those forming part payments in vouchers, to those paying un-taxed ‘bonuses’ to unwitting workers. So called ‘hybrid’ models would no doubt come under close scrutiny too.

Recruitment managers should also beware of ‘kick-backs’ for referrals that consultants often receive where tax and NI goes undeclared. These will undoubtedly constitute criminal tax evasion and the recruitment employer will be held responsible.

If you would like any more information or would like to speak to us about steps you should take in forming a PSL, then contact Quba Solutions on 01305 233178.