FUTURE TAX ADVANTAGES OF USING AGENCY WORKERS
FUTURE TAX ADVANTAGES OF USING AGENCY WORKERS DISCUSSED BY BLAKE LAPTHORN AND PROFESSOR ANNE REDSTON
On 17 September Blake Lapthorn's recruitment sector group hosted a sell-out seminar on tax aspects of Recruitment Process Outsourcing (RPO) and Managed Service Provision in relation to the supply of agency workers. Anne Redston, visiting Professor of Tax Law at Kings College London, contributed enormously to the event with her insights into Government thinking in this area.
In the seminar, Professor Redston and Blake Lapthorn agreed that:
Taxes will be going up in the next few years for obvious reasons, which will include taxes associated with the hiring of agency workers
Organisations that supply agency workers on a tax-efficient basis (via umbrella companies, properly constituted personal service companies and VAT mitigation models) will become increasingly valued by their clients. Indeed, many may find that their tax mitigation services become more valued by clients than their access to best candidates.
However, increasing HMRC scrutiny of tax planning, and new rules making Finance Directors of large hiring organisations and of large staffing companies, such as many RPOs, personally liable for ensuring that "appropriate tax accounting arrangements" are in place. This may make such organisations do more due diligence on suppliers, or at least use only well established suppliers with trustworthy brands and a clear commitment to compliance.
This in turn may lead some hirers and many RPO suppliers and staffing companies to consider setting up their own 'employed contractor' organisations. In this way they can better control implementation of tax planning and can make sure corners are not cut further down the supply chain. They may achieve this with the help of experienced umbrella companies who effectively become outsourced payroll systems providers. Blake Lapthorn point out that his model will also, incidentally, mean the workers are outside the Agency Workers Directive.
So far as developing Government policy in this area is concerned, Professor Redston and Blake Lapthorn commented that:
"The main reason the Government has not taken legislative action so far against umbrella companies travel expenses is (probably) that it is not a straightforward matter to identify umbrella companies without causing collateral damage. Innocent organisations will be hit, and there may be a movement of temps into the black market, with no tax being paid at all. Nor have HMRC found it easy to apply the existing law to attack umbrellas with arguments that their contracts are not 'genuine overarching contracts of employment'. This is a complex area turning on the facts of each case, presenting HMRC with enforcement difficulties similar to those encountered with IR35.
"HMRC are however very keen to use existing legislation to attack abuses in the umbrella world of expenses schemes and fictitious expenses, and to close down blatant Managed Service Company schemes and 'sole trader' and offshore umbrella models. Might Finance Directors of large hiring organisations be personally liable for these 'improper' arrangements?"
On another related point, Blake Lapthorn and Professor Redston said that HMRC seem unlikely to extend the proposed new construction industry tax scheme (designed to eradicate false self-employment) beyond the construction industry for some time, if ever.
Kevin Barrow and Frances Lewis from Blake Lapthorn's Recruitment sector group welcomed the fact that Professor Redston was due soon to join the bar, becoming available for expert opinions on self-employment and other key tax issues. They commented: "Anne will add immeasurably to the quality of specialist tax counsel available to suppliers and users of contingent workers. She really understands the real world issues facing people operating in this area."