New false employment legislation could combat recruitment industry ‘phoenixing’
4 April 2014
Legislation introduced as part of the Finance Bill that could see directors of recruitment companies personally liable for unpaid tax and National Insurance of workers could help combat ‘phoenixing’ by staffing companies, according to recruitment industry figures.
Fri, 4 Apr 2014
Legislation introduced as part of the Finance Bill that could see directors of recruitment companies personally liable for unpaid tax and National Insurance of workers could help combat ‘phoenixing’ by staffing companies, according to recruitment industry figures.
Under the Onshore Employment Intermediaries legislation that comes into effect on Sunday [6 April], the staffing company or the managed service provider (MSP) which holds the contract with the end client will be liable for the tax and NICs of workers supplied by them or through an intermediary on a sole trade/self-employed basis, unless the staffing company can prove to HM Revenue & Customs (HMRC) that those workers are genuinely self-employed.
However, Sam Hurley, head of external relations at the Association of Professional Staffing Companies (APSCo), tells Recruiter that HMRC has confirmed to the trade body in the last few days that should the recruitment agency itself not be able to meet the liabilities then the directors will become personally liable.
Hurley says she supports this aspect of the legislation, which she explains was brought in to stop ‘phoenixing’, where company directors walk away from company debts by liquidating the company, only to set up another company shortly afterwards, invariably with the same directors in charge.
“We are in favour of this aspect of the legislation because it promotes fairness,” says Hurley. “It is unfair that companies that won’t pay [their taxes] can just liquidate their company to avoid their tax liabilities, and can then set up the next day… There are a number of other areas where directors are personally liable, and this is just another.”
Hurley adds that she is hopeful that this part of the legislation can help clean up this aspect of the industry.
Derek Kelly, managing director of umbrella company Parasol, is also in favour of this part of the legislation. He tells Recruiter: “I think it is great, I am all for it. It will stop people who deliberately go under. In the past they could just ‘phoenix’ but now they can lose all their assets.”
Kelly warns recruiters not to rely on indemnities from intermediaries to deal with the problem of contractors’ unpaid tax and NICs. This is money that in theory is passed from the third party to the agency and used by it to pay the worker’s tax and NICs liabilities. He explains that should the scheme provider go under, and not be able to indemnify the recruitment agency, the directors of the agency could become liable unless it [the company] can meet the liabilities in full.
Matthew Brown, managing director of umbrella solutions firm giant Group, says: “While we welcome the expected crackdown on tax avoidance in the Finance Bill, the personal liability amendments are incredibly harsh on recruitment agency directors. For these individuals, the need to ensure all workers in their supply chain are not paid as self-employed workers is now more important than ever.
“Agencies and RPOs [recruitment process outsourcing firms] that contract directly with the hirer need to undertake a detailed review of all their current workers and their intermediaries to determine how workers are paid, and to assess their risks, moving workers were necessary. However, by putting in place and enforcing a strict preferred suppliers list, agencies can manage their financial risks.” The Recruitment and Employment Confederation had no comment.
Under the Onshore Employment Intermediaries legislation that comes into effect on Sunday [6 April], the staffing company or the managed service provider (MSP) which holds the contract with the end client will be liable for the tax and NICs of workers supplied by them or through an intermediary on a sole trade/self-employed basis, unless the staffing company can prove to HM Revenue & Customs (HMRC) that those workers are genuinely self-employed.
However, Sam Hurley, head of external relations at the Association of Professional Staffing Companies (APSCo), tells Recruiter that HMRC has confirmed to the trade body in the last few days that should the recruitment agency itself not be able to meet the liabilities then the directors will become personally liable.
Hurley says she supports this aspect of the legislation, which she explains was brought in to stop ‘phoenixing’, where company directors walk away from company debts by liquidating the company, only to set up another company shortly afterwards, invariably with the same directors in charge.
“We are in favour of this aspect of the legislation because it promotes fairness,” says Hurley. “It is unfair that companies that won’t pay [their taxes] can just liquidate their company to avoid their tax liabilities, and can then set up the next day… There are a number of other areas where directors are personally liable, and this is just another.”
Hurley adds that she is hopeful that this part of the legislation can help clean up this aspect of the industry.
Derek Kelly, managing director of umbrella company Parasol, is also in favour of this part of the legislation. He tells Recruiter: “I think it is great, I am all for it. It will stop people who deliberately go under. In the past they could just ‘phoenix’ but now they can lose all their assets.”
Kelly warns recruiters not to rely on indemnities from intermediaries to deal with the problem of contractors’ unpaid tax and NICs. This is money that in theory is passed from the third party to the agency and used by it to pay the worker’s tax and NICs liabilities. He explains that should the scheme provider go under, and not be able to indemnify the recruitment agency, the directors of the agency could become liable unless it [the company] can meet the liabilities in full.
Matthew Brown, managing director of umbrella solutions firm giant Group, says: “While we welcome the expected crackdown on tax avoidance in the Finance Bill, the personal liability amendments are incredibly harsh on recruitment agency directors. For these individuals, the need to ensure all workers in their supply chain are not paid as self-employed workers is now more important than ever.
“Agencies and RPOs [recruitment process outsourcing firms] that contract directly with the hirer need to undertake a detailed review of all their current workers and their intermediaries to determine how workers are paid, and to assess their risks, moving workers were necessary. However, by putting in place and enforcing a strict preferred suppliers list, agencies can manage their financial risks.” The Recruitment and Employment Confederation had no comment.
