We can now confirm that on Thursday 27th March HMRC will release final legislation for both Onshore and Offshore Intermediaries. Changes will come into effect from the 6th April 2014, with the first reports due in April 2015.

Who does this affect?

All businesses that engage with ‘non-permanent’ individuals, including:

  • Self-employed
  • Employed via their own limited (personal service) company
  • Employed via an umbrella company
  • Temporary or contingent workers

What does it mean for your business?

  • Producing quarterly reports to HMRC for every contingent worker who is paid directly (not paying an agency or master vendor). This could include anyone from the catering staff to a consultant running a programme of work.
  • Complete understanding and governance of the entire contractual chain; this means that your business will need to ensure it has consistent and robust contracts with your suppliers, and that you are performing rigorous reports on the limited companies, umbrella companies, agencies and all other suppliers forming part of the supply chain, to ensure they are meeting the appropriate tax and compliance legislations.

What are the risks?

  • The CFO will hold ultimate responsibility. Should HMRC find that someone engaged with your business is falsely represented as ‘self employed’ onshore, or is linked with an offshore intermediary who are not applying the correct statutory deductions, the most senior financial person in your company may be liable for the penalty. As yet the penalties are undefined; however, this is likely to be financial and/or imprisonable, in the very worst of cases.
  • Damage to reputation; when your business is built on providing financial solutions, as a trusted expert, the last thing you need is for your brand to be on the front page of any newspaper with a tax evasion scandal. The reputational damage, if caught up with any tax evasion scheme, will take years to recover from, not to mention the residual impact from both the Financial Conduct Authority and HMRC.
  • No defence; it is expected that there will be no defence to not accounting properly for tax, etc. Full liability is likely to be with the largest, most solvent business in the contractual chain, which 9 times out of 10 will be the end client.
What can you do to protect your business?
  • Understand your supply chain, undertaking a full audit of every contingent worker and any company in the contractual chain that is supplying the contingent worker.
  • Once you have completed the audit and have all the relating contracts, compliance and governance, you will need to track these Contingent Workers at every extension, ensuring you are fully aware of any company that may be supplying them, as this may change from time to time. This is important in order to ensure that you are able to provide accurate and timely reports to HMRC in Q1 2015.
  • If HR, Finance, Procurement & Legal teams are stretched in your organisation, you may need to consider an external solution.
  • Audits of your contingent workers would include a deep dive of your existing population, a data report, a risk report, and a plan of how to overcome the current risks and issues.

N.B. The content is correct at the time of publication.

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