Fraudulent defence clause to legislation to help intermediaries reduce risk

RA Now

A clause to the draft employment intermediaries legislation will make a party that has provided fraudulent documents to an employment intermediary liable for income tax, and not the intermediary.

In a statement to the Finance Bill Committee, David Gauke, MP, exchequer secretary to the Treasury, has confirmed that where an employment intermediary has acted in good faith it is not fair for them to be penalised and that the relevant clause will bring in a provision that where fraudulent documents have been provided, the party that provided the documents to the employment intermediary is the employer for income tax purposes.

The move follows extensive lobbying from APSCo regarding the fraudulent documents defence part of the legislation. “HMRC also confirmed that this new provision was largely due to APSCo’s lobbying efforts,” the recruitment body stated.

“APSCo had raised concerns that fraud can be very difficult to prove as one would have to establish intent to defraud and also that intermediary 2 would be left without any defence because the tax liability can only transfer to an intermediary that has a direct contractual relationship with intermediary 1,” said Samantha Hurley, head of external relations & compliance at APSCo.

“This statement is welcomed by APSCo and means that the provision will allow some of our members to reduce their level of risk, as long as they have robust processes in place.”

But she added that this will still only apply if they are in fact intermediary 1.

“Our reading of the legislation still suggests that this defence does not protect all employment intermediaries within the supply chain from being penalised when they have in fact, in the minister’s words: ‘[undertaken] due diligence, asked the right questions, received the necessary assurances and acted in good faith,’ on the documents provided to them by another party in the supply chain,” she said.

“These other intermediaries are left with a transfer of liability over which they have no control and against which they have no defence.”

Hurley said that ASPCo has written to HMRC requesting confirmation of its understanding of this provision, and brought the matter to the minister’s attention.