From April 2014 any recruitment agency working with an offshore umbrella company, or indeed their clients, will be at risk of debt transfer thanks to the application of the General Anti Abuse Rule (GAAR) to National Insurance contributions.
HMRC are introducing the new legislation to ensure that contractors who use offshore umbrella companies to try and increase their level of take home pay will be forced to pay their fair share of tax. The scheme provider will be liable to make the correct deductions for Income Tax and Employee’s National Insurance and for the payment of Employer’s National Insurance deductions. If they fail to make those payments the debt for the tax and NI owed can be passed to the recruitment agency that is supplying the contractor to the end client; if the agency were then to subsequently become insolvent the debt would be passed on to the end client.
HMRC has confirmed that they intend the legislation to be applied to the earnings of all workers using offshore schemes regardless of the tax avoidance mechanism that the scheme provider has in place. This means that even complicated arrangements involving self-employment of the worker with income being placed in Trust against which loans are given will be targeted by the legislation.
The onus has definitely been placed on the recruitment agency placing the worker with the end client as they will become liable for the tax debt even though there may be another or even two other agencies in the chain and one of them decided to refer the worker to an offshore avoidance scheme.
Recruitment agencies will be required to keep records, for a period of 3 years, which prove that they know how any worker they supply is engaged e.g.
· Through their own company and if so in what capacity
· Though an umbrella company and if so in what capacity
· Through a number of intermediaries
· If employed, whether through an offshore employer
For workers who are engaged by the recruiter and employed offshore, the recruiter will be required to make quarterly returns to HMRC unless tax and NIC’s are accounted for directly by the recruiter or the end client. Although HMRC have said that the implementation of these reporting requirements will not be rigidly enforced in the first year to allow recruiters, to get the appropriate processes in place, they will, subsequently, be applying penalties for incorrect or incomplete returns.
This means that recruiters will be taking on yet another increased workload and that they will have to ensure that they undertake thorough due diligence when working with umbrella companies but also when working with other agencies to avoid a big bill from HMRC sometime in the future.
The Draft National Insurance Bill has been published with the intent of making offshore intermediaries liable for National Insurance contributions.
The measures contained in the Bill include a general anti-abuse rule, provisions to make offshore employment intermediaries liable to NICs, changes to partnership tax arrangements in relation to National Insurance contributions and four other changes.
Click here to download the latest draft of the National Insurance Contributions Bill.
Erg Umbrella become the latest umbrella company to join the "straight talking" group of umbrella companies.
The group now consists of 29 umbrella companies who are looking to work within the guidelines provided by HMRC. By joining the group the companies agree to be questioned publicly about their business practices, so if anyone has any queries, comments or questions about any of the umbrella companies featured, then please get in touch.
In order for the "straight talking" umbrella companies work within guidelines provided by HMRC, the charter will have to be updated from time to time with the appropriate amendments, changes and additions as guidance is issued.
The first addition to the charter was suggested by RACS Group, and has subsequently been added to the original 10 point charter as follows:
Point 11. To pay at least National Minimum Wage (NWM) and expenses reimbursed will not form any part of the NWM calculation.
All members will be expected to adhere to this additional point. Any members found not to be following the guidance will be asked to address this and any comments published on the site.
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