Time to get to grips with tax

Anna Scott

Tax avoidance has rarely been higher on the agenda. Multinational corporations and celebrities have been in the headlines facing accusations that they pay too little tax.

Greater scrutiny of offshore businesses has been the obvious outcome of this, and companies operating within the recruitment sector are not immune.

The government and the Labour Party have made sure they have been seen to be taking steps to address the controversial matter. 

Earlier this week Prime Minister David Cameron said that places such as the Channel Islands should not be considered a tax haven, and Chancellor George Osborne has launched a consultation aimed at overhauling tax laws involving offshore companies.

Cameron pointed out that overseas territories and Crown dependencies should not be referred to as tax havens because they have taken action to ensure they have fair and open tax systems.

However, the HMRC is cracking down on unscrupulous ‘offshore’ umbrella schemes and from April 2014. If UK-based placements operate UK assignments as employees of an offshore umbrella company, and that ‘employer’ fails to account for UK tax and national insurance contribution due, the recruiter will be held accountable as the UK intermediary contracting with the UK client.

If the recruiter fails to satisfy HMRC’s demands for tax and NICs, the recruiter’s client will become accountable.

One particular issue is the issuing of interest-free loans by umbrella companies to their employees, which the HMRC is in some cases calling undeclared income. The consultancy ItsInternational points out that this may lead to test cases that will clarify the law.

The level of complexity in different tax regimes, within UK overseas territories, the European Economic Area and further afield is something recruiters need to grasp. But the situation is dynamic, and there are international political implications of changing tax regimes – along with a forthcoming election on the horizon – that politicians are all too aware of.

All this means recruiters need to get to grips with what it is necessary for them, their clients and their candidates to know, and to change their systems accordingly.

ItsInternational has conducted research which finds that SME recruiters in the UK have a poor understanding of how this new legislation could affect their businesses.

Making sure you have due diligence in place where necessary and getting up to speed on what the tax legislation will mean for recruiters will be vital in the coming months.