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Andrew Harrow, managing director of Baxter Personnel, asks why nobody is talking about what he calls the IR35-shaped elephant in the room…

Under the Criminal Finances Act 2017, corporations and partnerships can be held criminally liable if they fail to prevent their employees, agents or others who provide services on their behalf from criminally facilitating tax evasion.

The only defence available to an enduser is that it had “reasonable prevention procedures” in place to attempt to prevent any such facilitation from taking place – for example, through staff training and a robust written policy.

Having spent 17 years of my career in recruitment, the last 10 as managing director of Baxter Personnel, I have witnessed an amazing number of changes, but the impact of IR35 being rolled out to the private sector, coupled with the above statement, is going to have a real bearing on you as an enduser.

In a nutshell: if you use agency staff anywhere in your organisation and the recruitment agency or the umbrellas or mini-umbrellas behind them are not tax-compliant, then without “reasonable prevention procedures” – that is, an audit trail – you may have a very big problem with regard to the above finance act. This is our elephant!

Some end-users I speak with are not aware of, or don’t even care about, some of the payroll “schemes” their agency temporary workers are working under and in many cases assume the temporary workers work directly for the agency and are paid directly via PAYE and therefore sit outside IR35. This is a very dangerous and incorrect assumption.

On many occasions, recruitment agencies outsource their payroll to umbrella companies. This is where the problems start. Now don’t get me wrong, not all umbrellas are non-compliant – in fact, they provide a vital service to the industry and their services are widely utilised.

However, many other umbrellas are not. Many are based offshore for tax relief purposes and some appear to be legitimate, only to have hundreds of miniumbrellas sitting behind them – again, often offshore.

Some agencies use this type of umbrella/payroll schemes to gain a competitive advantage, as they can reduce charge rates and increase wages.

This is usually achieved through non-compliant NIC deductions, reducing the cost of processing workers and enabling them to increase the percentage of pay a worker takes home from around 65 to 85-90 per cent.

And so, back to the Criminal Finance Act. If the use of these umbrellas or any other non-compliant payroll scheme exists in your labour supply chain, failure to have taken reasonable action can lead to significant legal, financial and reputational risks to your business. It could even stop your business from operating entirely.

At Baxter Personnel we have operated an in-house PAYE payroll system for the last 29 years. We have never outsourced or paid anyone outside the PAYE model.

As such, we know a thing or two about how to be PAYE-compliant and we know where to look and what to look for in payroll processes that are not.

To assist our clients, both current and prospective, safely navigate the above acts and legislation, we would like to offer the many years of experience of our IR35 team for free to help you look at your current labour supply chains and ensure that all the suppliers and schemes are running in a tax-compliant way to satisfy your legal requirements.

We aim to help educate end-users who are not aware of the impending IR35 legislation and, more importantly, the Criminal Finance Act consequences if due diligence isn’t correctly followed.

If you would like more information or you would like to speak with our IR35 team to book your free labour supply chain consultation, please call us on 0330 133 3597.