Recruitment compliance becomes more complex under Criminal Finances Act 2017

Recruitment compliance criminal finances act

27th November 2019

There’s no doubt that the push towards more comprehensive tax systems around the globe is progressing – and one of the leading lights in this fight is the UK. On this blog, we have covered a variety of steps that HMRC has taken to clampdown on evasion, and advised recruitment firms on the necessary compliance measures needed to prevent them inadvertently being punished under the Criminal Finances Act 2017.

This month, news has emerged suggesting that HMRC is stepping up the use of its new powers. Therefore, it’s important that recruitment agency tax compliance is a top priority for firms – especially if they wish to avoid contravening the Criminal Finances Act. Here’s what you need to know.

Recruitment compliance – How is HMRC using the Criminal Finances Act 2017?

HMRC is ramping up its efforts as a result of powers given to it by recent legislative changes, raiding premises and demanding inspections of company records to crackdown on suspected VAT and contractor tax fraud.

As a result, many advisors have been telling clients to carry out due diligence on suppliers and contractors – as non-compliant activities from either of these parties could result in a company being prosecuted.

These actions are being carried out due to the ‘corporate criminal offence’ featured in the Criminal Finances Act 2017, which applies to the evasion of UK and foreign taxes. Under the law, liability will be attributed to companies and partnerships where a business or its employees ‘fail to prevent’ a ‘representative’ facilitating tax evasion.

For recruitment agencies, this means that compliance is more important than ever, as the Criminal Finance Act uses ‘representative’ to refer to any agent, contractor or third-party supplier. Companies can be found liable for simply not having the correct preventative procedures in place

While there have been no prosecutions so far, many advisers are reporting more use of the powers, with HMRC carrying out several investigations. Inspectors are looking closely for instances of VAT fraud in supply chains and the employment status of contractors. Both areas have been the subject of billions of pounds of lost revenue in recent years.

HMRC’s Offshore, Corporate and Wealthy unit, created to target high-net-worth individuals and businesses with undeclared offshore interests, founded after the Panama Papers leak, has been asking firms to disclose all details of suppliers and contractors to look for signs of such tax evasion.

There have been reports of the unit issuing letters warning businesses to enhance due diligence, with a focus on labour providers and contractors. HMRC is also seeking to arrange an inspection of customer and supplier lists, invoices, VAT accounts, supplier contracts and transaction histories. Companies under scrutiny will have to provide ‘trading records on a monthly basis’.

Time for change

Recruitment agencies placing contractors abroad cannot be under the illusion that compliance is something to be taken lightly. The Criminal Finances Act 2017 is explicitly clear that an offence will be committed whenever a corporate fails to prevent anassociated person criminally facilitating the evasion of tax, in the UK or abroad.

Therefore, it is crucial that owners of these companies ensure they have ‘reasonable procedures’ in place to cover themselves in the event of a non-compliant contractor. As we’ve said before, claiming ignorance is not deemed a defence. And while there’s yet to be a landmark case brought under the act, no one wants to be the first.

In order to ensure you and your firm remain compliant no matter where in the world you operate, and allow you to do business in international markets, it is always advisable to speak to an expert.

Contact us today.


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