Protect your key workers by ensuring they stay clear of tax avoidance schemes

Key workers have proven they’re invaluable and have made everyone in the UK proud. Without them, it’s not worth contemplating the consequences that could have arisen from the COVID-19 pandemic. Their efforts in containing the virus and protecting the public will never be forgotten.

As a way of saying thank you, thousands of businesses have been offering key workers special discounts, exciting freebies and the chance to jump queues. However, while a majority of companies reaching out to key workers have their best interests at heart, HMRC has found that tax avoidance schemes are preying on them. 

As a professional working in the recruitment sector, you must protect your candidates – especially NHS workers, carers, and emergency service staff. After all, failure to do so could have severe consequences for them, and your recruitment agency.

This article explains how tax avoidance schemes are targeting key workers – especially those who are returning to work as an extra line of defence against the coronavirus. It will also summarise the serious threats to recruitment agencies, and what you must to do to remain compliant and avoid penalties from HMRC.

HMRC has identified numerous unethical tax avoidance schemes

Tax avoidance schemes have been around for decades, but unfortunately, they have reached a new low – targeting vulnerable NHS staff and key workers.

HMRC is aware of schemes specifically targeting “workers returning to the National Health Service (NHS) to help respond to the coronavirus (COVID-19) outbreak”.

The BBC has gone undercover and the findings are worrying

A reporter at the BBC has recently gone undercover and has engaged with a tax avoidance scheme, posing as an NHS worker. The reporter was promised a take home pay of 78% – far higher than if they were paid via a compliant umbrella company. And interestingly, their pay would be split into two aspects, the first being minimum wage (PAYE), and the second being “an investment payment”.

Split payments are typical workarounds for tax avoidance schemes. For example, we have recently seen tax avoidance schemes with job boards – where contractors are paid a minimum salary and the rest is given to them in the form of loyalty points. These loyalty points can instantly be swapped for tax-free cash. Other tax avoidance schemes have involved paying the worker a minimum salary with the rest as a loan. The loan is paid tax-free, and is not expected to be paid back.

It can be easy for candidates to get mislead into using a tax avoidance scheme

Unfortunately, finding a tax avoidance scheme is far too easy. And, in such challenging times, who isn’t attracted to bold text that states “keep more of your money” or “legally pay less tax”? And, what makes these schemes even worse is the fact they are explicitly targeting low-paid key workers.

Search engines, social media and price comparison sites are just some of the main sources of tax avoidance adverts. Having just searched for “key worker umbrella”, the very first result on Google is a comparison site offering 84% pay retention. Any business offering such high pay retention is a tax avoidance scheme and engaging with such a business could ruin an honest key worker’s life. After all, most of the tax avoidance schemes advertise themselves as being “legal”, “compliant” and “HMRC approved”.

As a responsible Recruitment Agency, you must educate your candidates and make sure they stay well clear of such arrangements.

Your agency could be at risk as a result of The Criminal Finances Act (2017)

If HMRC discovers that one of your candidates has engaged with a tax avoidance scheme, they will go after them to try and reclaim every penny of underpaid tax. However, if your candidates are unable to pay, who is responsible?

HMRC will do what they can to get the funds from the provider of the tax avoidance scheme. However, as historical investigations suggest, these companies are not around for long. Usually, they are created to target vulnerable workers and they operate for a short period of time. Then, they shut and do everything they can to hide their tracks. Holding a Director of a tax avoidance scheme responsible is extremely difficult.

If your candidates cannot pay the tax they have avoided, and the scheme has long-gone, then what? This is where the Criminal Finances Act (2017) comes into play.

If anyone at your recruitment agency has referred a candidate to a tax avoidance scheme, even by mistake, your business could be considered a facilitator of tax avoidance. And, if HMRC decide you are responsible, your recruitment agency will need to cover the tax bill. Financially, it could ruin your business, not to mention the harm to your reputation.

Don’t forget DOTAS (2004)

The Disclosure of Tax Avoidance Schemes (2014) legislation was introduced to encourage any party in the supply of temporary workers to report suspicious payroll companies.

If HMRC suspect anyone at your agency is promoting the services of a tax avoidance scheme, your entire organisation could be in serious trouble. To avoid any sanctions, you must educate your Consultants on the legislation and let them know that if they ever come across a questionable payroll provider, they must report them to management. Then, the scheme must be reported to HMRC because they will then issue it with a Scheme Reference Number (SRN) – meaning it’s under investigation.

For every candidate that is referred to a tax avoidance scheme, your agency will face a penalty. And, this penalty could continue to rise up to £1 million.

To protect your staff and your business’s future, you must be compliant with DOTAS. And the easiest way to do this is to have an up to date and reliable Preferred Supplier List (PSL). Doing so will make sure your Consultants only refer candidates to ethical, proven and dependable companies.

Only refer your candidates to FCSA accredited providers

The Freelancer and Contractor Services Association (FCSA) is the UK’s leading professional body committed to ensuring the supply chain of temporary workers is compliant and ethical. To achieve FCSA accreditation, accountants and umbrella companies must undergo a thorough audit and assessment process.

Once the accreditation is obtained, each member must undergo a yearly review. This is why recruitment agencies should only refer their candidates to FCSA accredited providers.

Having an up to date and dependable PSL has never been so important for recruitment agencies. However, we appreciate that keeping your PSL up to date can be a time-consuming task. However, by referring to an FCSA accredited accountant or umbrella – the FCSA has untaken all the due diligence for you. This means you can save an abundance of time.

Refer your candidates to Churchill Knight

Churchill Knight is a member of the FCSA, and we are confident there is no better way to showcase our dedication to compliance within our sector.

As a well-established business with over 20 years’ experience, we receive thousands of referrals from hundreds of agencies every year. We are also very grateful to find ourselves on an ever-growing number of PSL’s.

To refer a candidate to us (limited or umbrella), please complete the short form here. Alternatively, please send an email to agency@churchill-knight.co.uk.