HMRC continues investigations into tax avoidance in labor supply chains

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As investigations into corporate compliance with criminal offenses progress, transparency and controls will be key to reducing risk

HMRC has released (30 June 2022) figures on the number of live inquiries into Corporate Criminal Offenses (CCOs). The report confirms that labor supply remains a high-risk area.

Even where its reviews did not find deliberate facilitation of tax avoidance, HMRC confirmed that the reviews led it to find other tax and regulatory offenses to pursue. This fits with HMRC’s historical position of finding civil enforcement easier than prosecution.

However, even if prosecution is avoided – and there are signs that HMRC are now more aggressive in pursuing them, so it cannot be assumed – a civil investigation with 20 years tax exposure and penalties of up to ‘200% can always be critical business. an event.

Supply chain risks

Given HMRC’s changed attitude to tax avoidance, labor supply chains present particular risks.

The new position of HMRC and the courts is now being applied with hindsight in the context of the complex interplay between the different pieces of tax law.

These include IR35, tax rules for agency workers, rules for offshore employers and managed services company legislation to produce significant tax risks even when HMRC decided not to prosecute .

Live surveys

HMRC had seven ongoing inquiries into the CCO as of May 13, 2022 and it said no charging decision had yet been made.

21 other live opportunities are currently being considered. To date, HMRC has reviewed and rejected a further 69 opportunities.

These surveys and ‘opportunities’, as HMRC calls them, cover 11 different business sectors and affect all HMRC customer groups. The provision of labor is one of five sectors specifically mentioned by HMRC as an area in which investigations are ongoing.

In March, Stacey Mills-Kelly, deputy director and head of strategies at HMRC Fraud Investigation Service, told an Osborne Clarke webinar that HMRC’s activity to prevent tax avoidance in supply chains on hand -work had begun.

Supply chain exposure

In a typical labor supply chain situation, end users and staffing companies are particularly exposed to companies they rely on to pay workers, including umbrella companies or payroll partners to abroad such as record company employers.

If these offshore umbrella companies or payroll partners are involved in tax evasion, end users and staffing companies using them may be subject to unlimited prosecution and fines, unless they do not have put in place reasonable measures and procedures to prevent the facilitation of tax evasion.

HMRC has recently described one type of umbrella scheme – Mini Umbrella Company (MUC) arrangements as tax evasion – and so end users and recruitment companies should have procedures in place designed to spot whether there is arrangements like the MUCs in their offer. chains – and if so, stop using them.

The HMRC approach

HMRC is now visiting large businesses (the top 2,000 in the UK) to check, as part of the normal pattern of its risk reviews, what prevention procedures they have in place to control their supply chains.

Many large companies have expressed concern over this scrutiny and are requiring their personnel suppliers to prove (rather than simply state) that they carry out the appropriate checks on their UK and overseas supply chains. .

If suppliers cannot prove that the appropriate checks are carried out (and this means more than checking that they are accredited by a trade body), larger companies may want more checks to be carried out to avoid HMRC processing the business as high risk.

Commentary by Osborne Clarke

By no means do all record-type umbrella or employer arrangements involve tax evasion, and the good ones will welcome this crackdown on operators who undermine them with illegal tax schemes.

But the crackdown will require vouchers to be very transparent about how they pay workers, and require end customers and staffing firms to carry out appropriate checks on the entities they use to pay their workers.


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