It’s October 2024. For many years now, tax avoidance in the payroll sector has been ever present. The perception is that every payroll company must be up to something but in reality this is not the case. The actions of a few, have such a big impact on the masses and unfortunately this is what sticks to the industry.
In April 2024, we had a breakthrough. A first tier tribunal between HMRC and a number of small limited companies that took part in the very well known tax avoidance model Mini-Umbrella (MUC), determined that Mini-Umbrella was deemed as fraudulent and that the Employment Allowance and Flat Rate VAT were being used in an exploitative manner to create advantage for the intermediary providing the payroll solution. You can read the findings here. So, this was the end for Mini-Umbrella right? Wrong. Even though the judgement, detailed every single element that makes Mini-Umbrella work, gives examples of promotors by individual and company name, examples of agencies and directors that knowingly used the model to increase margins, Mini-Umbrella has gone nowhere. In fact, you could even say it has come back with a vengeance.
In the last month alone, we have had multiple phone calls, meetings and engagements with clients, potential new clients and colleagues within the industry, whereby end clients are dictating charge rates, which are so low that the only way to meet them is by using a tax avoidance model. Agencies signing up to tax avoidance models to meet the demands of end clients rather than rejecting the work and protecting the business. Agencies undercutting rivals and facilitating the loss in margin through tax avoidance to claw back lost margin as a result. It is no secret that across all sectors, 2024 has been a tough year. Numbers aren’t where they have been, there is a nervousness in the economy and with Labour very likely to increase Employer’s NI costs and National Living Wage, the charge rate/ pay rate balance is going to become even more difficult for agencies. Unfortunately, some agencies see tax avoidance of a way of combating these problems. For a list of Tax avoidance promoters, click here.
Alongside Mini-Umbrella, there has also been the creation of Accounting Acquisition, another tax avoidance scheme, that allows an agency to pay their workers vanilla PAYE but the company the workers are paid through have mysterious “Tax credits” that soak up the Employer’s NI “because the tax has already been paid”. Problem is, the way in which the tax credits are obtained is unlawful. The fact that there is an infinite amount of tax credits already raises serious questions, but when you hear the way in which they are being obtained, you quickly begin to realise this is just another avoidance model, exploiting a floored system, defrauding HMRC out of millions and putting agencies knowingly or unknowingly at risk of mass financial risk.
HMRC have for at least the last 18 months to two years, started to crack down on tax avoidance, but not in the way you might think. You would assume, that you find the company promoting the tax avoidance scheme’s, do some research into them and take them to court. But that is not how it works. More often than not, by the time HMRC have found the culprits, they have vanished into thin air, leaving no trace behind them but with a huge amount of liabilities still outstanding. So, the next rung in the supply chain ladder is attacked. The agency that used such a model. HMRC use the notion that the agency know exactly how their workers are being paid, what model it is through and the potential benefits they are receiving as a result. In the scenario that this is true, the agency have a problem. However, there is the scenario whereby the agency genuinely have no clue. They have been sold a PAYE model and asked no more questions. This is where HMRC get a quick win. Without any evidence of due diligence, paper trails and proper research into the provider that was used, the agency is open to thousands of pounds worth of financial liabilities.
In today’s world, it is boring, but due diligence is king. Regular due diligence at that. With a proper paper trail, audit process and safety measures taken, you can protect your business from any potential financial liability that may arise from malpractice. It is also widely touted that this Labour government will make due diligence on your outsourced payroll provider mandatory. You won’t have a choice. We agree that this should be mandatory in all cases. Current due diligence advice on the government website is here.
Ask yourself, When was the last time you did a proper audit on the payroll providers on your PSL? Do you really know the individual(s) who own the business you are using? Have you done a fit and proper persons test on the business owner? Have you seen evidence of PAYE and VAT liabilities being both reported and paid to HMRC? Have you seen example payslips and processes that are in place for your workers? Are the payroll provider you use accredited, proving ongoing due diligence and best practice? The list goes on and on. But, if the answer to any of these questions is never or no, you are exposed.
Rocket Paye can help you mitigate these risks, quickly and efficiently, cost free by putting 3 simple steps in place. These 3 simple steps will ensure, that if you are ever asked the question by HMRC, you have the answers at the tip of your fingers. Whether you use Rocket Paye or not, we strive for a compliant and fair market place. We want to create a safe environment for agencies to thrive without threat of penalty due to other peoples actions. There is no obligation whatsoever to use us, but conversations and knowledge is power, so we are more than happy to have these conversations with as many agencies and people as possible.
We are easy to reach, happy to talk and ready to go. Reach out to a member of our team today on the below contact details, mitigate your risk, sure up your supply chain and help to end tax avoidance.
Phone: 01992 929 170
Email: [email protected]