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What HMRC’s self-employment tax spotlight means for recruiters

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New figures show HMRC collected more than £800m in additional tax through payroll investigations last year, as it cracked down on false self-employment.

The £819m haul represents a 16% increase on the 2015/16 total.

HR news site Personnel Today reported that the increase followed:

 … payroll investigations by (HMRC’s) employment status and intermediaries team, which was set up to investigate businesses that have declared a high number of self-employed workers.

Intense scrutiny

Paul Noble from law firm Pinsent Masons, which obtained the data, said:

HMRC has made no secret of its suspicions of how companies classify their workers. Considering the scale that the gig economy has grown to, it is no surprise that it is now under intense scrutiny by HMRC.

HMRC also revealed that investigations into the payrolls of large businesses generated £503m in additional tax in 2016/17, up 31% from £383m the previous year.

HMRC, self-employment and recruitment agencies

At a time when competition to attract and retain candidates with the right skills is fierce, more and more recruitment businesses are moving back into self-employment and CIS.

This follows the initial exodus that was brought about by the 2014 onshore employment intermediaries / false self-employment legislation.

Those rules made ‘supervision, direction or control’ (SDC) the key test for determining whether or not an agency worker / contractor can be self-employed, placing liability and risk at the door of recruiters.

So what does the tax authority’s focus on self-employment tax mean for agencies that place, or are thinking of placing, self-employed workers?

Don’t be low-hanging fruit for HMRC

The key point to bear in mind is that, done properly, self-employment is a perfectly legitimate way of working for contractors, as long as HMRC rules on SDC are followed.

It’s vital that any agency moving into self-employment puts robust, comprehensive processes in place and follows them to the letter.

These processes must ensure that only workers who are free from SDC are able to set up as self-employed subcontractors.

How ADVANCE can help

At ADVANCE we offer a self-employment / CIS solution that is accredited and certified as compliant by the Freelancer & Contractor Services Association (FCSA).

Contractors who are free from SDC can subcontract as self-employed through us, while recruitment businesses benefit from a bespoke solution designed to minimise their exposure to risk.

As well as utilising our in-house expertise (our managing director Shaun Critchley is a qualified solicitor with expertise in employment status and tax law), our SDC process is independently reviewed twice a year by industry experts at Big Four accountancy and advisory firm EY.

The results of these reviews are available to be viewed by our agency partners.

Find out more

We have already helped several recruitment businesses embrace self-employment with confidence.

If your agency is missing out on candidates and clients, maybe it’s time that you joined the self-employment revival with ADVANCE.

To arrange an informal discussion about our solution and self-employment more generally, get in touch using the below form.

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