Compliance for recruiters: HMRC set to toughen up on tax in response to coronavirus debt

compliance for recruiters coronavirus

20th May 2020

While the coronavirus has dominated almost all of the news cycle in recent months – at 6CATS International, we believe that it’s important that recruiters looking to continue placing contractors abroad when travel restrictions are eventually relaxed are aware of the continued strict approach that HM Revenue and Customs (HMRC) is taking towards non-compliance, especially on an international level.

The tax authority has been clamping down on evasion and avoidance more heavily for a number of years now , and in a recent FT Adviser article, a tax expert urged the government to further target tax crime to help pay for the recovery from the coronavirus crisis. Here’s some of the top-line insights on how it may affect compliance for recruiters.

Compliance for Recruiters: Coronavirus crackdown

According to the article, in order to help address the huge amounts of debt created by government interventions and stimulus packages – HMRC is likely to recoup much of this lost revenue from a tougher approach to tax evasion – which will naturally include money from overseas sources.

George Bull, senior tax partner at RSM, commented that:

“There are lessons to be learned from what the UK’s public services can deliver when they are properly resourced. We have previously reported that tax lost through criminal attacks, tax evasion and the hidden economy has averaged around £14 billion per year since 2010.

“To put it another way, if HM Revenue and Customs was adequately resourced to stamp out tax crime, much of the nation’s fiscal pain of recovery from the coronavirus could be eliminated by collecting these taxes on time.”

He continued, stating:  “As the UK government plans our route out of lockdown, we urge it to increase the resources available to HMRC so that they can tackle tax crime by the relatively few for the benefit of society. Surely, it’s wrong to extract more tax from honest taxpayers while HMRC does not have the resources to tackle such horrifying levels of dishonesty?”

HMRC continues its crackdown

However, if HMRC is to increase its crackdown on international compliance as a way of paying for the coronavirus recovery – it isn’t without precedent – as the tax agency has been increasing the strength of its approach for some time. Here’s a couple of examples of how the authority has become stricter on tax in recent years:

  • In February 2020, it was revealed that HMRC would finally be taking advantage of the extended powers granted to them by the Criminal Finances Act 2017 (CFA), with nine businesses being investigated by HMRC, and a further 21 cases under criminal review as a result of this Act. Cases under review cover businesses in a wide range of sectors including financial services, oil, construction, labour provision and software development.
  • In the same month, it was revealed that there has been a jump in the number of requests for help made to British investigators by foreign prosecutors in tax evasion probes. According to reports, the number of enquiries for information made to the Home Office from other countries has risen by 47% from 103 in 2017 to 148 last year. These requests require businesses to provide foreign law enforcement agencies with documents such as transaction histories or bank statements or to give evidence in court.
  • In the March 11th Budget, chancellor Rishi Sunak pledged to boost the number of HMRC compliance staff by around 1,300 and capture more than £4 billion in missing revenue over the current parliament. The government also plans to increase its investment in technology to better target those abusing the tax system, something we have covered in our blog about HMRC’s Connect system.
  • Overall, 2019 was a record year for HMRC, marking the first time it has managed to exceed half a billion pounds in offshore revenue. This is a stark increase of 72% over the past two years, rising from £325 million in 2016/17. This has been partly down to the authority’s new Offshore, Corporate and Wealthy unit, created to target high-net-worth individuals and businesses with undeclared offshore interests. In 2018/19 the unit made investigations into 827 individuals or businesses, representing an average yield of £677,000 per taxpayer.
  • While the Offshore, Corporate and Wealthy taskforce has certainly been effective, according to a request under the freedom of information act, the number of specialist task forces within HRMC has ballooned to 209 since May 2011 when the first team was introduced. These task forces bring together different HMRC compliance and enforcement teams for intensive bursts of activity focused on both individuals and companies. They target specific sectors and locations where the authority believes there to be a high risk of tax evasion and fraud.

Recruiters should be aware

Ultimately, regardless of the global coronavirus outbreak and subsequent lockdown enforcements noted worldwide, non-compliance and fraudulent behaviour will not be tolerated. HMRC has been getting stricter over the last few of years – making accurate contractor compliance crucial for recruiters placing contractors abroad. However, with the huge amount of debt that the UK is set to accrue during the coronavirus – the tax authority will be keen to collect as much revenue as possible.

For recruitment agencies seeking to place contractors abroad – this means that any small oversight in tax and compliance on the part of a recruiter or any of the contractors they place could land them in serious trouble.

Furthermore, with the constantly shifting situation surrounding the coronavirus, many countries are changing employment and tax laws regularly, with this set to continue for some time. This will make compliance abroad more difficult than ever before.

At 6CATS International, we have the necessary expertise to navigate the current landscape, allowing your firm to do international business abroad throughout the coronavirus and beyond. We will continue to update firms should any new information arise, and there are plenty of coronavirus related blogs and resources on our website for any recruitment agencies looking to understand the compliance situation in various contracting hotspots.

Please do not hesitate to contact us if you have any questions or would like more information.


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