The Criminal Finances Act 2017: Are recruitment agency tax solutions ready?

recruitment agency tax solutions - Criminal Finances Act

4th February 2019

Here at 6CATS International, something we’ve been very vocal about is the need for agencies to stay on top the increasingly strict tax legislation being introduced by governments around the world. One piece of legislation we’ve focused on in particular is the Criminal Finances Act, a very important act for recruitment firms wanting to operate internationally. The legislation came into play in September 2017 and includes a law whereby any business can be prosecuted if employees, agents or even contractors evade tax and the business is deemed to have taken insufficient measures to prevent this activity. While this new law could have profound consequences for those that contravene it, many have still not taken action. However, firms looking to do business abroad cannot afford to let this happen and recruitment agency owners need to ensure their firm is not at risk – and soon!

The CFA and recruitment agency tax solutions

The key offence that recruiters will need to be aware of when creating tax solutions is the ‘failure to prevent facilitation of tax evasion.’ This is split into two potential offences – one for when the tax evaded is owed to the UK and the other when the tax is owed to a foreign country. For criminal liability to apply, there are three things required:

  • A taxpayer must have criminally evaded tax under existing law.
  • The tax evasion must have been facilitated by an “associated person” of the organisation, which can mean anything from an employee, to even contractors and sub-contractors.
  • The organisation must be deemed to have failed to prevent the associated person from committing the tax evasion.

The only available defence to this is that the organisation had in place robust preventative procedures.

Is your firm at risk?

The CFA 2017 is unusual in that it applies to all companies, LLPs or partnerships, regardless of the size of the business or the industry it operates in, meaning any business that falls into these categories and hasn’t taken necessary action to guarantee compliance will be at risk. A year ago, we undertook a survey in conjunction with Camino Partners – the country’s only recruitment consultancy specialising in back office and support roles for recruitment companies. According to the results of this, almost half (43%) of firms were unaware of the impact this legislation could have on their business, showing recruitment agency tax solutions to be very open to negative ramifications. While this figure alone is alarming, it is even more of a worry when we factor in that one third of the survey respondents stated that they held responsibility for compliance in their firm. While this was a year ago, in our view, and the view of our wider network, not enough has changed since then.

How long have businesses got to implement prevention strategies?

Recruitment agency tax solutions need to be made fully compliant as soon as possible. HMRC is aware that the implementation of new systems takes time, but will not allow companies to delay compliance efforts. Ignorance of the law, or indeed ignorance of the behaviour of an associated person who could undertake tax evasion, will not be considered a defence. Too many hiring firms are dangerously exposed to potential criminal charges and have no idea of the risks they’re taking. Unfortunately, there is still a huge lack of education around what breaking the law could actually mean for agencies who promote faulty tax solutions to international contractors.

What does this mean for recruitment agency tax solutions?

As authorities worldwide introduce new legislation and penalties to clampdown on wrong-doing, the landscape is becoming increasingly complex. At the same time, international opportunities for agencies are plentiful, and recruiters shouldn’t miss out due to the headache of tax compliance. This is why we recommend using an expert contractor compliance service that can provide you with fully compliant, transparent and streamlined tax solutions for recruitment agencies.

 

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