Last year, and more alarmingly in recent times, Baxter Personnel have encountered a number of recruitment agencies trying to undercut their rates. In terms of the costing, we have come across our clients being offered disturbingly low rates on more than one occasion meaning one of two things… either the agency is making a loss or it is running a tax avoidance scheme designed to reduce costs and increase profits by abusing tax relief. In this case, if the rates look too good to be true – they generally are.
For those who are less aware of what these companies do, Umbrella companies act as payroll agents, who charge the worker directly and not the agency that’s providing the workers. Many also get involved with suspicious tax avoidance arrangements mainly involving travelling expenses that they use to supplement workers’ wages. The umbrella companies running their business in this way tend to produce questionable pay slips.
On 16 April 2014, the HMRC published a document called "Employment Intermediaries: Temporary workers – relief for travel and subsistence expenses” and this summarised the coalition Government’s plans to clampdown on the misuse of travel and subsistence rules, which will come into force on 6th April 2016, as well as implementing new reporting requirements which came into place in 2015.
Addressing the House of Commons in his Budget Speech Chancellor George Osborne said: "We will stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies who abuse tax reliefs on travel and subsistence – while we protect those genuinely self-employed.”
Most of the companies that are still conducting business in this way will have no choice but to increase their rates and hope that their clients don’t look elsewhere. This is something that is leaving many clients using these kinds of agencies and umbrella companies with a financial mess to resolve and confusion about the legislation.
Back in 2014 when the plans for this legislation were first announced, Andrew Harrow, Managing Director of Baxter Personnel said “We carried out a 6 month feasibility study in 2013 into Baxter Personnel adopting this kind of scheme. The reality of the situation however is that HMRC outlawed this practice and this decision has been upheld many times through the courts. In any case, taking more of a holistic view of things, Baxter Personnel is better off that its name stays well clear of headlines containing “tax avoidance” and “worker exploitation” etc. as well as remaining loyal and professional to its clients, even if this means running the business at a higher cost.”
You can find out more on legislation here, and also the reporting requirements here.
If you would like to find out more about how these changes could affect you, or if you are currently being affected by this legislation, then why not contact Baxter Personnel today for reliable and cost effective staffing and recruitment needs by speaking to one of our branches.