NI liability: Where does the responsibility lie?
This follows on from HMRC’s new proposals to tackle tax avoidance by the users and promoters of offshore schemes.
ContractorUmbrella has responded to the publication with the following statement.
Currently, there are a number of schemes being operated which, invariably, promise contractors take home pay of anywhere between 80 and 90%. The scheme operators, who are based in recognised tax havens such as the Isle of Man and Guernsey achieve these figures by encouraging contractors to involve themselves in tax avoidance and by avoiding Employer’s National Insurance Contributions which are payable by all UK employers. As the workers are, for the most part, resident in the UK, tax resident in the UK and working in the UK, HMRC have introduced legislation to redress, what they perceive to be, the unfairness of the situation.
From 6th April, agencies that engage with offshore intermediaries will find themselves liable for Employer’s National Insurance contributions on the earnings of workers who have been placed with UK clients. A number of avoidance scheme operators have a UK address as a front for a business which is actually operated offshore so recruitment agencies will have to ensure that their due diligence procedures seek proof that, not only are they working with a UK registered umbrella company but also that the umbrella company is making the Employer’s NI contributions as required by law.
The new legislation will, in effect, cripple the offshore intermediaries sector and therefore promoters are likely to offer considerable incentives to agencies to promote or even tolerate the use of their schemes. However, Employer’s NI currently stands at 13.8% of earnings over £148.00 per week and is uncapped. If an agency were to place just 10 contractors, each earnings £200 per day, for 6 months with an offshore intermediary, their potential bill would be in excess of £28,000.
These changes have been introduced in conjunction with changes to the Agency Workers Legislation which will also pass responsibility to recruitment agencies for operating correct PAYE taxes and National Insurance contributions in the event that the end client will be exercising supervision, direction and control over the worker.
All these additional responsibilities will be forced onto recruitment agencies unless PAYE is already being properly accounted elsewhere i.e. through a UK registered compliant umbrella company.
Lisa Keeble, MD of ContractorUmbrella Ltd and co-founder of All Umbrella Companies are Equal commented, “Never has such a great burden been placed on recruiters, by HMRC, to the point where some are even questioning the legality of their actions. Working with umbrella companies is a great way of alleviating that burden but only if the recruiter carries out the correct due diligence. Some umbrella companies will offer substantial incentives to recruiters to promote their business to candidates but, from 6th April, it could prove to be a false economy continued compliance doesn’t come cheap and an umbrella company that’s offering 30% of its margin as a referral fee is unlikely to have the investment needed.”