Tax Schemes - Agencies being hit Tax Schemes - Agencies being hit
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  1. #1

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    Default Tax Schemes - Agencies being hit

    AccountingWeb : HMRC campaign causes collateral damage
    http://www.accountingweb.co.uk/tax/b...lateral-damage

    Rebecca Cave caught up with Philip Fisher, AccountingWEB columnist and BDO partner, to find out more about the issue.


    26th Jul 2016 : Innocent employment agencies are being hit with tax bills relating to a tax scheme which they had no idea existed.

    Tax scheme

    Investigations by BDO have uncovered a tax avoidance scheme which offers individuals an effective 1% rate of tax, if they pay 16% of their earnings to a scheme promoter. The scheme has reputedly been sold to more than 2,000 individuals and HMRC is now trying to recover the tax that they avoided.

    The scheme appears to involve a single employer and a trust or alternatively an individual located in a tax haven, as well as one or more UK-based companies. The employees are apparently rewarded with non-taxable loans rather than more traditional forms of remuneration.

    Caught in a trap

    The workers caught up in this scheme have been recruited to work in multinational companies across the UK, with contracts that pass through a chain of UK employment and recruitment agencies. Many of the employment agencies at the top of the chain, who supply workers directly to the multinational companies, had no idea the tax avoidance scheme was in existence, even where they had carried out a reasonable level of due diligence with the smaller UK-based companies they source workers from.

    Several of those top-level employment agencies have received assessments raised under reg 80 of the PAYE rules (SI 2003/2682), which demand huge sums of tax.

    HMRC powers

    Where PAYE has been avoided in a supply chain, HMRC has the power to collect that tax from any company in that chain, if one or more of the parties is based overseas (ITEPA 2003 s 689). This is the legislation used in this case, which has been combined with assessments raised under regulation 80 to demand the tax avoided from the “indirect” employers.

    Fisher and his colleagues at BDO have seen a number of regulation 80 assessments in recent months, and conclude that HMRC has issued hundreds of similar tax assessments to UK-based employment agencies.

    What to do

    Fisher recommends that recipients of such tax assessments should immediately lodge an appeal with HMRC and request postponement of all the tax demanded. When HMRC respond, the taxpayer should request a statutory review from HMRC. Those reviews are now carried out by the solicitors’ office within HMRC, so should be genuinely independent of the HMRC officers who raised the regulation 80 assessment.

    Quantum of tax

    A key point to address with HMRC is the how the tax demanded in the reg 80 assessment has been calculated.

    Fisher said this is key: “Although the agency will know what they have paid to the third party supplier for the worker’s time, that agency will have no idea of how much the worker eventually receives, or of the effective tax rates which should be applied to that income.

    Fisher added: “There is danger of double taxation in this process, as even if the employment agencies pay up, the individual workers will also be asked to pay income tax on the remuneration or dividends that they have received from the managed service company, or personal service company in the chain.”

  2. #2

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    Default Recruitment agency liable for PAYE?

    There is a story on Accounting web (that I was kindly alerted to)

    http://www.accountingweb.co.uk/tax/b...comment-548429

    which reports that some recruitment agencies have been recipients of Reg 80 determinations. These are demands for PAYE from employees and are similar (probably) to those seen in the Murray case.

    It seems that HMRC are looking at the chain of entities involved in offering contractor services to end user clients and consider that one or more of them may be the "employer" for PAYE purposes.

    This gives rise to a number of questions.

    1. Is HMRC correct?
    2. Is this just for current year or will there be determinations for earlier periods?
    3. Why the recruitment agency (in the immediate case) and not the end client?
    4. The agency in this case claims no knowledge of the scheme being used - true?
    5. Is this another case of the promoter (and recipient of fees) getting away scott free?
    6. How might this impact the recruitment agencies practice in the future?
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    Quote Originally Posted by webberg View Post
    This gives rise to a number of questions.

    1. Is HMRC correct?
    Who knows? That'll be for the courts to decide (and I expect that they will get to decide it).

    Quote Originally Posted by webberg View Post
    2. Is this just for current year or will there be determinations for earlier periods?
    Earlier years. I saw a few that just managed to beat the 5 April deadline. These were for the K2 scheme.

    Quote Originally Posted by webberg View Post
    3. Why the recruitment agency (in the immediate case) and not the end client?
    End-users are getting them too.

    Quote Originally Posted by webberg View Post
    4. The agency in this case claims no knowledge of the scheme being used - true?
    You'd have to ask the agency. But the end-users I am aware of knew nothing.

    Quote Originally Posted by webberg View Post
    5. Is this another case of the promoter (and recipient of fees) getting away scott free?
    Yes. But you'll have seen that there were three arrests a week or so ago. It's also interesting to see that the users of those schemes (that those three individuals were involved with) appear to be being asked stuff under Code of Practice 9. If anyone does get a letter mentioning COP9 then it is time to get some serious tax advice.

    Quote Originally Posted by webberg View Post
    6. How might this impact the recruitment agencies practice in the future?
    No idea, I don't work with them. But I would expect that end-users will want to be a lot more careful.

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    Do you think that the arrests were in respect of a contractor scheme?

    There is still a lot of noise around film schemes and I'm aware of a couple of promoters there who are having troble sleeping at night. (Or I hope they are).

    Agree on COP 9 - serious stuff.
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    see thread above.
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    I recall that some of the actual employers using agencies always refused to have any dealing with certain schemes. There was a lesson there for HMRC - a note to the HR Depts of the FTSE100 and their own government depts may have saved this all panning out as it did.
    I saw this several times as a hirer at various investment Banks. I wasn't aware of any agency driving this themselves.
    In some cases the agency may have thought increased take home could allow them to make a greater margin or that the contractor would accept a lower rate. Prior to 2008 no-one cared in my sector the amount of money was sloshing around. (I do recall my scheme provider telling me of one individual who had billed 880k through them in one year. Highest day rate I encountered was 5k the highest I signed off was 2k - one does wonder the APNs those individuals are nursing). Clearly this presents the issue of double taxation.
    Perhaps they have realised its best to go after those that have the deepest pockets and strongest balance sheets that represent the least individual points of contact. From my own experience HAYS, Michael Page, Harvey Nash, S3, Robert Walters would have had had contractors in the hundreds under these circumstances.

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    Quote Originally Posted by QCApproved View Post
    From my own experience HAYS, Michael Page, Harvey Nash, S3, Robert Walters would have had had contractors in the hundreds under these circumstances.
    It will be interesting to see if they go to the aforementioned "deep pockets" agencies (which probably will have access to solid legal defence), or if they will instead set their sights on the low-hanging fruit that is the plethora of boutique / specialist recruiters (who won't).
    I could produce further cynical commentary but I'll just say I suspect it will be the latter.

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    Indeed Dotas, The huge sums have to be with the big agencies though and ultimately there is the REC supporting them all through subscriptions. Surely they wouldn't want a precedent set by defeating a weaker player.

    It seems to me it has to be one source or another if the contractor pays then surely the agency and vice versa?

    There may be a combination of factors now at work putting the take from individuals in jeopardy. One is personal solvency but also people now being out of reach.

    I went through some of my records last weekend and pulled out a few stats
    Period 2002-2012
    Known to, or hired by, me contractors on schemes: 21
    Total Quantum earnings approx £1.2m
    Number of antipodeans: 17 (16 now returned home)
    None of them are intending to pay APNs.

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    Quote Originally Posted by QCApproved View Post
    Indeed Dotas, The huge sums have to be with the big agencies though and ultimately there is the REC supporting them all through subscriptions. Surely they wouldn't want a precedent set by defeating a weaker player.

    It seems to me it has to be one source or another if the contractor pays then surely the agency and vice versa?

    There may be a combination of factors now at work putting the take from individuals in jeopardy. One is personal solvency but also people now being out of reach.

    I went through some of my records last weekend and pulled out a few stats
    Period 2002-2012
    Known to, or hired by, me contractors on schemes: 21
    Total Quantum earnings approx £1.2m
    Number of antipodeans: 17 (16 now returned home)
    None of them are intending to pay APNs.
    So for 17 of those the only accessible payee of tax to HMRC is any recruitment agency still standing... That can only be the bigger players as the smaller ones have probably merged or closed by now...
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    That should have read £1.42m

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