HMRC is warning organisations about the use of mini umbrella companies in the labour supply chain and the need to carry out due diligence to protect the organisation from financial and reputational damage.
Without a careful review of their labour supply chain the end user could find themselves liable for tax, national insurance and VAT avoided by entities inserted in the labour supply chain between them as end user and the workers engaged via the umbrella structure. This was highlighted in a recent BBC programme which identified 48,000 umbrella companies set up to exploit the £4,000 employment allowance. These companies were set up to supply workers to the NHS Covid testing programme outsourced to G4S. Similar arrangements continue to be marketed to allegedly sidestep the new “off-payroll” working rules.
If you use agency or temporary workers or are an agency providing workers, you or one of the other parties in the labour supply chain may need to operate PAYE on the workers’ earnings – you should check who needs to do this. HMRC have provided the following advice on due diligence procedures:
See: Advice on applying supply chain due diligence principles to assure your labour supply chains - https://www.gov.uk/government/publications/use-of-labour-providers/advice-on-applying-supply-chain-due-diligence-principles-to-assure-your-labour-supply-chains
What are the risks?
HMRC can ask you to account for unpaid tax and National Insurance contributions. For example, if an offshore agency supplies you with workers and they do not account for tax and National Insurance contributions payable through the PAYE system, then you may have to.
To increase compliance with the off-payroll working rules in the private and voluntary sectors, organisations receiving an individual’s services (where the individual works through their own intermediary, most commonly their own limited company) are now responsible for assessing that individual’s employment status and determining whether the rules apply from April 2021. This reform already applies in the public sector where an individual works through their own intermediary.
The off-payroll working reform from April 2021 will also provide HMRC with the power to recover unpaid tax and National Insurance contributions from you, or the agency you contract with in some circumstances – if, for example, a UK-based agency lower down in your labour supply chain fails to account for tax and National Insurance contributions payable through the PAYE system under the off-payroll working rules and there is no realistic prospect of recovering the tax and National Insurance contributions from them. This change will apply to the public, private and voluntary sectors.
See: 10 things about due diligence: supply chain assurance - https://www.gov.uk/government/publications/use-of-labour-providers/10-things-about-due-diligence-supply-chain-assurance
