29th May 2020
While the coronavirus has certainly dominated the news agenda over recent months, there are still ‘business as usual’ activities taking place – particularly in the global tax and compliance landscape – that staffing companies need to stay aware off. One such example is the increasingly strict approaches being taken by HM Revenue and Customs (HMRC) to non-compliance, particularly on an international scale. And with lockdowns potentially being lifted across a variety of destinations, contract placements are likely to begin creeping up, making now a truly crucial time to ensure your recruitment firm and the contractors it places are not falling foul of tax regulations.
Last week, we reported that tax experts were calling on HMRC to strengthen their crackdown in order to pay for the huge amounts of debt caused by the government’s attempts to protect the economy during COVID-19. Since then, news has emerged in the Telegraph that HMRC’s efforts at halting overseas tax dodging has led to a 12-fold increase in the number of British expats coming forward to declare previously unpaid duties.
For recruiters, placing contractors in this new climate will make compliance more important than ever. Here’s what you need to know about HMRC’s COVID-19 tax crackdown and the impact it will have on the contractors you place.
HMRC COVID-19 tax crackdown: Expats under scrutiny
According to this latest news, a Freedom of Information Act has shown that HMRC’s extended crackdown on international tax evasion has increased the number of people admitting failing to pay tax owed in Britain from 66 in 2017-18 to 867 in 2018-19.
Individuals hailed from a number of regions, such as Liechtenstein, Bermuda and Hong Kong. More than 40% of these came from people living in the Channel Islands, nearly one in ten from those in the Isle of Man and 6% resided in Switzerland.
According to Jason Collins of law firm Pinsent Masons, the surge in disclosures last year had provided HMRC with hundreds of new targets for its investigations. He commented that ‘given the pressure the nation’s public finances are under due to the COVID-19, we can expect many of these to be followed up on.’
A wider crackdown
As we have repeatedly stated at 6CATS – the strength of HMRC’s approach to tax evasion, both domestically and abroad has been increasing for a number of years, and this crackdown is certainly not limited to COVID-19. The authority has dramatically increased its scrutiny of the affairs of tax exiles and wealthy individuals over the last decade, helping to close the gap in public finances following the 2008 financial crisis.
It is thought the recent increase in disclosures is down to a number of reforms that have brought more expats into the British tax net. In fact, 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 an 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 carried out investigations into 827 individuals or businesses, representing an average yield of £677,000 per taxpayer.
Furthermore, in the March 11th Budget, Rishi Sunak pledged to boost the number of HMRC compliance staff by around 1,300 in order to capture more than £4 billion in missing revenue over the current parliament. With an assessment by the Treasury showing that COVID-19 could cost the UK as much as £300 billion, this strict approach is only set to continue. The government is also planning to increase its investment in technology to better target those abusing the tax system, something we covered in our blog about HMRC’s Connect system.
According to Mr Collins, the tax authority had more powers and insight into people’s money affairs than ever before, even if they lived overseas. He stated:
‘Staying on top of legislative changes is very important for any expat tax exiles and other non-residents – penalties can be very harsh and HMRC is likely to have the data now to carry out checks. Any UK asset that is held through an offshore entity is a red flag for HMRC.’
Recruiters should be aware
Ultimately, regardless of the global coronavirus outbreak, non-compliance 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. This means that HMRC’s COVID-19 crackdown may be its strictest yet – and everyone needs to take note.
For recruitment agencies placing 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. And with the constantly shifting situation surrounding the coronavirus, many countries are changing employment and tax laws regularly, and it certainly looks like this will continue to be the case for some time. This will make compliance abroad more difficult than ever before and will increase the potential risks associated with international contractor placements.
At 6CATS International, we have the necessary expertise to navigate the current landscape, allowing your firm to carry out international business activities throughout the coronavirus pandemic and beyond. As authorities around the globe continue to alter restrictions as necessary, our team of experts are on hand to advise on the latest developments and what these mean for the international contractor compliance landscape. We’re already seeing pockets of activity increase in some destinations and will continue to monitor the situation across the globe. As always, we will update firms should any new information arise – during these difficult times, information sharing will be key to supporting the recruitment sector and we will play our part in this.
And if you haven’t already seen them, there are plenty of coronavirus related blogs and resources on our website for any recruitment agencies looking to better 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.