What's Happening?
The HM Revenue and Customs (HMRC) is implementing a new tax enforcement strategy that holds recruitment agencies and end-hirers accountable for tax underpayments in the labor supply chain. This approach, known as joint and several liability, aims to ensure compliance within the umbrella market, where companies manage pay and employment for workers. However, there is concern that this strategy unfairly burdens recruitment businesses, which may be held liable for tax shortfalls despite lacking the necessary powers to obtain tax information or enforce compliance. The recruitment sector is already facing challenges due to a prolonged job market contraction and significant employment law changes.
Why It's Important?
The new enforcement strategy by HMRC could have significant implications for the recruitment industry and businesses that rely on umbrella companies. By shifting the responsibility for tax compliance onto recruitment agencies, there is a risk of increased administrative burdens and potential legal liabilities. This could lead to higher operational costs and discourage businesses from using umbrella companies, potentially impacting the flexibility of the labor market. Additionally, the strategy may not effectively target non-compliant companies, as it places the onus on intermediaries rather than directly addressing the root causes of tax evasion.
What's Next?
The recruitment industry is advocating for a more balanced approach to tax enforcement, emphasizing the need for HMRC to directly regulate and enforce compliance within the umbrella market. The establishment of the Fair Work Agency (FWA) next year is expected to play a crucial role in ensuring responsible practices across the industry. Meanwhile, recruitment businesses are advised to conduct thorough due diligence when engaging with umbrella companies to mitigate risks. The ongoing consultation by HMRC may lead to further refinements in the enforcement strategy, potentially alleviating some of the concerns raised by industry stakeholders.
