Prior to the general election this year a survey conducted by ComRes found that the majority of those polled want tougher action to crack down on tax avoidance. 

This comes as no surprise as there have already been countless episodes of public outrage at the revelations that various large organisations are only paying a fraction of what they owe, and despite the legality of it, the vast majority of people find it morally wrong.

A common method of tax avoidance can be falsely registering what are actually de-facto employees as self-employed. This gives them a non PAYE tax status and means that the employer can save on the likes of National Insurance.

Therefore as of April 6th, all intermediaries, defined as any person who makes arrangements for an individual to work for a third party or be paid for work done for a third party, including recruitment agencies, became required by law to report on a quarterly basis to HMRC on non-PAYE employees. Over recent years it has become increasingly apparent that some intermediaries are helping to create false self-employment status for individuals by listing them as non-PAYE or supplying UK workers from offshore locations. These are tools used as a means of reducing employment taxes and avoiding fulfilling legal employment rights and obligations. Not only will the new requirements ensure the right tax and National Insurance is paid by those working through intermediaries, but that unfair commercial advantage is reduced.

It may appear that the new regulations simply present an arduous task to already overstretched workers, both in HMRC and the intermediaries, who have to go through the paperwork of dozens of employees, but what is the alternative? With public opinion so firmly against tax avoidance, small and large, if the government stood by and allowed more and more people to abuse the system we would lose all confidence in our government’s ability to implement change. Too often the government publically condemns the actions of a group or individual, only to prove their inability to act, or do anything other than express disapproval. This repeatedly costs the government public faith. Although the majority of people understand that some political restraints exist.  People start to feel cheated, like the government they voted into power are failing to serve their best interests. Regulations like this, although a small step, is still one towards progress.

The fact that the government has chosen to issue penalties to those who fail to comply, further demonstrates their resolve to crack down on abuses to the system. Failure to comply with the reporting regulations will have negative consequences for both clients and intermediaries. If the client gives the intermediary incorrect information HMRC can treat the client as the employer of the worker for Income Tax and National Insurance purposes, and failure on the intermediaries behalf to provide the completed report by the outlined deadlines will result in penalties – £250 for the first offence, £500 for the second and £1,000 for the third and later offences. For a small business these costs could surmount to the point where an inability to correctly file paperwork threatens the existence of a business.

Cooperation on behalf of HMRC and the intermediaries is highly beneficial for both parties, but we are of the opinion that the system itself needs reworking. The most efficient way to ensure the compliance of intermediaries and prevent future issues, would be to synthesise the process of capturing the required information during the application process and alerting the intermediaries when someone’s details are about to expire or need renewing. Human error is not something that can be entirely controlled or avoided but it can be managed.

For local authorities who have a large dependence on temporary staffing, the workload required to process these checks would take a minimum of 20 working days a quarter – something that the hard pressed public sector clearly has no time to do, so an automated way of doing this is necessary, especially for local government who would come under massive fire for harbouring tax avoiders.

Barry Moseley is Managing Director of Matrix SCM: http://www.matrix-scm.com/