Compliance and Financial Risk
For over two decades HMRC have attempted to tackle tax avoidance in the contracting market. However, in more recent years, HMRC have shifted their focus from the individual to the supply chain, including recruitment agencies and clients. In response to this, agencies have looked to umbrella companies to ensure their contractors’ HR and payroll are managed compliantly. Unfortunately, though, many providers have been operating disguised remuneration schemes claiming to offer ‘compliant’ higher-take home pay rates, primarily through the uses of offshore loan schemes.
In 2017, the government introduced the Criminal Finances Act (CFA), which meant recruitment agencies could be held responsible for failure to prevent tax evasion, be it directly or indirectly through their supply chain. Agencies who engage with or have contractors working through these disguised remuneration schemes face potential criminal charges and an unlimited fine for failing to prevent their supply chain’s wrongdoings.
On July 21, 2020, HMRC published a call for views and evidence from anyone who has experience of disguised remuneration schemes. On page 25 the document states that ‘while the majority of employment agencies are tax compliant, HMRC is aware that some use DR schemes to undercut their competitors by offering higher take-home pay.’ The document asks the public whether more pressure should be put on recruitment agencies and poses the question as to whether they should be ‘building on the responsibilities that employment agencies contracting with engagers have for ensuring tax compliance in the labour supply chain.’
With HMRC now actively pursuing non-compliant cases and proposing plans to introduce more stringent laws and regulations to the sector, recruitment agencies need to ensure their processes, supply chains and mitigation plans are robust and up-to-date to avoid legal liability down the line. As the industry changes and legislations become more refined, it is crucial that recruitment agencies do not become complacent with their established PSL. Annual reviews and supplier updates are essential to avoid any unexpected liability risk caused by an outdated or poorly managed preferred supplier list.
Although not a new trend, the Coronavirus pandemic highlighted the repercussions of a weak supply chain on recruitment agencies’ business branding. Many agencies received backlash and criticism, as candidates cast blame on them for their supplier’s mishandlings of the Job Retention Scheme. Similarly, when the Loan Charge was introduced in 2019, contractors who used higher-take home pay ‘umbrella’ schemes received large tax bills for unpaid tax contributions. Contractors working through these companies placed blame on their recruitment agency, claiming they advised or allowed them to use these schemes and were not made aware of the repercussions. In both instances, agency workers and contractors took to social media, online forums, and personal blogs to share their experiences and criticism, leaving many agencies with tainted reputations.
5 Actionable Steps to Review Your PSL Today
Key Information Document
As of April 2020, Recruitment Agencies are required to provide a Key Information Document (KID) to their members. This document is primarily designed to improve transparency for agency workers and contractors, particularly around pay, and the pay illustration used on the KID will usually be provided by the umbrella company to the agency. Agencies can, therefore, use these documents to identify questionable pay models. If a supplier is offering take-home pay retention rates reaching 80-95%, this would be indicative of a disguised remuneration scheme or non-compliant gross/split pay arrangement and further due diligence would be required.
Identify if your preferred suppliers are accredited by the Freelancer & Contractor Services Association (FCSA). FCSA accredited members are audited annually and must frequently test and update their processes to prove their compliance with all legislation.
Requested an up-to-date Balance Sheet
Ask your preferred suppliers for up-to-date balance sheets to ensure they remain in a strong financial position. The economic pressure of COVID-19 will be tough for many businesses, it is important to ensure that your preferred suppliers remain in a favourable financial position and are not under pressure to make ends meet. If you are looking for a new preferred supplier, opt for one has been operating for over five years to ensure they have a proven record of strong financial growth.
Research Suppliers and their Management Teams
Do your research on each supplier and their management team. It is common for non-compliant operators to set up under a new business name once their old company has been caught out or wound up to avoid detection.
Speak to your team and contractors
Ask your team about how your suppliers communicated and performed. How was communication on the CJRS delivered to your agency and candidates and how were problems and complaints handled? How do your candidates rate your suppliers? Are they satisfied with the services they receive?
Experience the Generate Difference
Generate is a customer-focused contractor management company, providing streamlined and transparent payroll solutions to recruitment agencies and their contractors.
Our customers are at the heart of everything we do, and our tailored services reflect our commitment to contractors and agencies. Our contractors trust us with their livelihoods, and our agencies trust us to protect their contractors at every stage.
What our Agencies have to say about Generate
Generate has consistently provided a high level of support to our contractors over the years. Their onboarding and registration process is streamlined, and our contractors benefit from their simple payslips and extensive perks portal. The team’s response during COVID-19 has been outstanding and they have worked incredibly hard to deliver the best financial solutions for those affected.
– Justyn Randall, CEO, Opogo
Generate FS have been exceptional during the COVID-19 pandemic. Their professionalism and communication have been first-rate during this difficult time. We operate a preferred supplier agreement, and they were always the first to update us on the changing regulations. We very rarely have any customer service issues, so our candidates are also very well looked after in ‘normal’ trading. I would fully recommend Generate to anyone looking to freshen up their PSL.
– Greg Dickens, Director, First For Education
“We have used Generate for the past 4 years and find them extremely helpful. Candidates’ queries are resolved and the level of communication from the whole Generate team is second to none.
They support us as a business by ensuring everything is run smoothly. I cannot recommend Generate enough for Education Recruitment companies”
-Jake Grady, Team Manager, Prospero
By partnering with Generate your business will benefit from:
We invest time in understanding your agency on an individual basis and tailor our services to your specific business and contractor needs.
Personal Advice & Support
You receive a dedicated business manager and account manager from day one. Every query, referral and request your business makes, is handled by your allocated team. This ensures business requirements and expectations are always met on time.
Partnering with Generate, you can rest assured all contractor payments are subject to PAYE and national insurance. Guaranteed 100% compliant. No supply chain risk for you or your client.
Across all payroll solutions, your candidates will benefit from Generate’s first-class service:
- Telephone and online registration options
- Telephone, live chat and email support
- Workplace pension, with tax-efficient salary sacrifice options available
- Online CPD platform, with thousands of free and discounted career development courses
- Thousands of discounts at high street and online retailers
- Personal contractor portal, providing a one-stop-shop for all employment documentation and employee benefits.
- Workplace insurance coverage
- Sick pay and maternity/paternity pay