Why a recruiter should refuse a provider “incentive”
September 24, 2010 in Contractor News, Freelancing, Industry comment, Recruiter News
The umbrella company market is pretty competitive with a variety of techniques used to attract Contractor business. Some providers use a more direct to Contractor approach featuring fee promotions and big referral fees. Others try to work with Recruitment Agencies to explain how it all works and get the Recruiters to then refer to (usually via a preferred supplier process) the providers that the Agencies work with. Here at Parasol we do a mixture of Contractor word of mouth of referrals (for a decent fee discount) and work closely with Agencies to deliver service efficiency, fast processing and help them mitigate their risks. I will declare that we sometimes send Recruiters a promotional pen, a mouse mat or even the odd donut drop, but that’s the extent really. We draw the line at providing individual recruiters with vouchers, gifts or cash. Surely what provider a recruiter refers to should be based on the principles of service, corporate policy and a trusted relationship that helps the recruiter get the job done.
Now, it is ok to work with an Agency, disclose an incentive program and for the provider to pay the tax on behalf of the recruiter on their own tax settlement. It’s not a great way to do business in my opinion, but it is legal and with transparency, is used (not by us!). However, in 2010 we have the new Bribery Act to consider and what are the implications for these incentive schemes (official and unofficial).
If a person is being paid without the consent of his employer for passing leads to another business then they would fall within the bribery act. The bribery act creates an offence when “an individual gives a financial or other advantage to another person in return for a person improperly performing his function” The issue arises if the agency are unaware and say a recruiter has a private arrangement with an umbrella company for the passing of leads in return for a payment (a bribe). However, there will be a number of offences apart from the act of bribery. If the recruiter does not declare the payment then he is likely to have defrauded HMRC he is also likely to be found to be stealing from his employer as his employer will most likely want the payment so his employment could be terminated under gross misconduct and the agency could prosecute him for theft. Until recently the practice largely went on unregulated and is difficult to prove but with the new act in force, Agency owners are going to be more keen to ensure that their future business performance is not blighted by messy cases or reputational damage. I would also challenge the owners of these same businesses to consider the impact in a possible sale of the business in relation to due diligence discovering material bottom line contributions, I think that could also negatively impact valuations.
So it must seem a bit obvious to state, but if an Umbrella comes asking for business on the back of cash or other material incentives, then be really very careful. Todays short term gain could be tomorrows serious pain.
by Rob Crossland
Racy tax schemes under more pressure
October 5, 2010 in Business Expenses, Contractor News, Freelancing, Industry comment, Recruiter News, Tax
Back in October 2008 I blogged on the changes to the Isle of Man disclosure rules and suggested it might make it more difficult for those solutions to prosper. Well I was partly right and partly wrong so let’s deal with the wrong first.
Since that time (and of course before) those “schemes” have happily continued and backed by fistfuls of “leading QC opinion” and “disclosure to HMRC” have happily carried on advertising 85% to 90% nett return on invoice value. They often are based around a two level solution, some income via a PAYE model and then other income via employee trusts and/or loan solutions. Sound complicated? It is. One of the odd parts is that by claiming to an “employment Umbrella” and state “employment taxation” they then go on to brazenly advertise 90% nett take home pay! Last time I checked you couldn’t work via PAYE and take home 90%. As the discarded Verve song goes, “The maths don’t work”. Of course there will be variants to this, more income put through PAYE to reduce the level of scrutiny the scheme might attract or more IR35 checks. For the contractor it can amount to hassle or a lot worse and for Recruitment Agencies, risk and pain. Let’s also not forget that the Government gave HMRC powers to go back in time to look at tax treaties in the past and Contractor forums are littered with tales of stress. There will always be some people who will take the riskier route and good luck to them but the heat is being turned up. I can categorically state that HMRC are aware of many of these schemes and only for a lack of resource it seems, have not yet got around to looking into all of them.
The BBC recently reported that a arrest was made in the Isle of Man in relation to an alleged offence with the BBC stating, “A spokesman from HMRC said: “The investigation centres around the suspicion that tax avoidance schemes have been implemented fraudulently”. Police suspect schemes could have been sold to more than 600 subscribers with an estimated tax loss in excess of £90m.” In the current climate do we think that HMRC can allow £90m or thereabouts to not be collected? I hope the 600 users of said scheme have got good investigation insurance.
Let me be clear though, I’m all for true entrepreneurial spirit and class myself in that category. There are some small company reliefs out there that are relevant and can help a business get started and thrive. Ir35 is not exactly a great solution and the UK Government does not fully understand the dynamics of the flexible workforce, that said if you push the envelop to the extent that some do, then you really cannot complain when the authorities then have to legislate. So if you’re a contractor thinking of signing up to a “scheme”, please think twice and understand the risks involved. Those risks could be at least hassle and at worse, truly painful.
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