The Criminal Finance Act 2017- Recruitment Agencies face the prospect of prosecution under new law

The new legislation, which came into effect on the 30th September, means that Recruitment Agencies could be hit with massive fines or even charged with a criminal offence if they’re seen to be failing to prevent tax evasion.

What is the offence?

This Act makes it a criminal offence for companies to fail to prevent a person associated with it (which could include an employee, agent, adviser, or contractor) from criminally facilitating the evasion of tax. With recruitment firms often relying on contractors, subcontractors and umbrella companies to handle their own tax, the risk is exponential.

Simply turning a blind eye to the issue is not enough. This is a strict liability offence (essentially “guilty until proven innocent”) meaning that until the company can demonstrate that they took reasonable steps to prevent the tax evasion taking place, they will be held liable.

What can Recruitment Agencies do to prevent prosecution?

One way of doing this is to put in place a series of ‘prevention procedures’. Your Recruitment Agency should be looking to demonstrate the following six principles across day-to-day business activities:

  1. Risk Assessment – Your Agency should assess the extent and nature of its exposure to risk by properly vetting all new and existing Contractors.
  2. Proportionality- To determine whether a procedure is reasonable, it must be proportionate to the risk faced. As recruitment is a comparatively “high risk” industry, authorities will be looking for Recruitment Agencies to be taking considerable steps to prevent tax evasion.
  3. Top level commitment- High-level managers should be committed to preventing tax evasion. A culture in which tax evasion is never acceptable should be fostered across the Agency.
  4. Due Diligence- The Agency should keep records of, and be able to demonstrate, its due diligence procedures, taking an appropriate and risk based approach.
  5. Communication – Training, training, training. Policies should be communicated, understood and embedded throughout the Agency.
  6. Monitoring and Review- The Agency should be consistent in monitoring and reviewing its prevention procedures and make improvements where necessary.

Recruitment Agencies who use TBOS can pay workers using a PAYE scheme, through their own Limited Company or through an Umbrella Company. Each option has its own risks and rewards. For further information, you can call TBOS on 0845 881 1112.