In our recent webinar, we discussed the complexities of staffing supply chains and the enforcement activities of HMRC. Throughout the webinar, our panelists provided invaluable insights into the current landscape and practical tips to help mitigate tax risks.
Hosted by Osborne Clark, a prominent law firm, and us at Giant Group, this webinar aimed to equip participants with a deeper understanding of HMRC enforcement trends and actionable steps to reduce exposure to tax risks.
According to Ian, "HMRC's focus on agency worker tax legislation is a wake-up call for agencies and end users alike."
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HMRC tax enforcement
Ian Hyde from Osborne Clarke provided expertise into HMRC's aggressive approach towards tax enforcement, emphasising the risks associated with non-compliance and the potential impact on businesses across the supply chain.
What do we mean by off-payroll supply chains and what are the trends?
Dan Haslam here at Giant Group explained the rise of off-payroll workers and the challenges in spotting them within supply chains.
Off-payroll work encompasses individuals providing services to an end client without direct engagement by said client, often contracted through third parties like recruitment agencies or payroll providers. This extends to various supply types, including consultancies and platform providers, posing a challenge in pinpointing all instances of off-payroll workers. Hence, organisations mustn't assume that all workers supplied or assigned to their services are directly employed by the contracting supplier.
The trend reflects a significant rise in contingent workers in the UK, with approximately 4.2 million self-employed individuals, including CIS, agency, gig, and umbrella workers, constituting about 23-25% of the UK workforce. This growing workforce complexity extends beyond worker classification and IR35 concerns, highlighting the diverse tax risks within labour supply chains.
Current tax climate in the contingent worker sector
Ian Hyde, Tax Disputes Partner at Osborne Cark stated:
As tax risks and dispute specialists, we perceive the current tax climate in the contingent worker sector as not solely a sectoral issue but rather a complex "labour" supply chain challenge, according to HMRC's approach. There's a prevalent trend of tax avoidance, and sometimes even criminal tax evasion, within this sphere. The pressure arises from suppliers competing on pricing, with both end users seeking the lowest-cost contingent workforce and workers aiming for higher take-home pay. This competitive environment often leads to structures that seemingly bypass tax deductions like PAYE or claim tax deductions for travel and subsistence, providing a competitive edge in winning contracts. Consequently, other suppliers are compelled to match these offerings or risk losing market share, particularly evident in sectors with lower wages.
Exploiting tax rules for employed/self-employed/PSC status yields significant tax benefits, sometimes resulting in hefty tax liabilities for individuals. However, the vast number of individuals involved makes enforcement challenging for HMRC, favouring those attempting to exploit the system. In response, HMRC has intensified its efforts, employing aggressive tactics and leveraging previously underused legislation, such as the Income Tax (Earnings and Pensions) Act (ITEPA), and introducing new powers like platform reporting obligations. This heightened activity is evident in increased scrutiny from HMRC, particularly in areas like Construction Industry Scheme (CIS) verification and assessing Statement of Work (SOW) arrangements to ensure genuine contracted-out services.
MSC legislation
Ian highlighted how HMRC is focusing on agency worker tax legislation and its implications. Ian then went on to discuss the risks associated with Managed Service Company legislation. Both stating the importance of businesses conducting Corporate Criminal Offence risk reviews to stay compliant.
Throughout the discussion, it was clear that HMRC's efforts are complex and evolving, requiring proactive measures from businesses. Dan stressed the need for compliant umbrella employment solutions, while Ian urged realistic supply chain models and careful contract scrutiny.
Ian underscored the importance of being prepared for HMRC investigations and adopting a strategic approach to address potential liabilities. Additionally, it highlighted the significance of implementing and reviewing compliance-checking processes to mitigate risks effectively.
From Giant
As the session concluded, audience questions touched upon potential changes in IR35 legislation and the implications of upcoming umbrella consultation. If you would like a more in-depth view of the questions asked and want to watch this webinar, please contact us at hello@giantgroup.com
Remember, staying compliant is key to success in today's business environment. If you have any questions or need further assistance, please reach out.
