The tax office has turned the tables, and the headlines, on recruiters.
It would seem that they have come out swinging after being attacked for an estimated £390m in tax avoidance and will now bring those that are running these multi-million pound schemes to book.
HMRC has queried where the figure of £390m has been derived from however, they have openly admitted they expect to collect an additional £7bn by 2017 through tackling the abuse of schemes, including those which seem to circumvent PAYE, National Insurance Claims (NIC) and National Minimum Wage (NMW) rules.
Hands up; as a sector we do shoot ourselves in the foot and some of us deserve the criticism that is so prevalent online in response of the latest round of news stories.
By embracing non-compliant expenses schemes for temporary workers, recruitment agencies are able to supplement the meagre profit margins that exist in some temporary recruitment contracts.
But this means that when an agency walks away from a contract that is not economically viable, another less scrupulous agency can step in using any number of outlawed schemes to create an additional revenue stream to increase the value of said contract.
Lack of consistency
As a result, the recruitment industry continues down a slippery slope of cannibalised margins and moral ineptitude.
This speaks to more than an overly competitive industry. It highlights the apparatus that is in place that allows this exploitation in the first place and the shocking reality that candidates have been reduced to commodities with little or no value.
But before HMRC even starts investigating the rampant non-compliance that exists in the recruitment industry, it needs to review its own guidelines and less than enviable reputation in dealing with the temporary workers sector.
At a very basic level HMRC needs to issue guidelines in black and white and more importantly, adhere rigorously to these guidelines and not apply them differently across the sector.
The current lack of consistency and clarity enables different translations of the travel and subsistence expenses schemes and promotes the propagation of expenses models such as the one known as ‘payday by payday’ that is genuinely considered to be legitimate by some agencies.
The very fact that there is debate around these schemes blatantly contradicts the HMRC’s assertion that its rules are clear.
There are also a number of case studies where a dispensation to run an expenses scheme has been given to some agencies and umbrella companies, but not to others; this is clearly unfair and again creates an unlevel playing field. Her Majesty’s tax inspectors also need to have more teeth when it comes to enforcing her laws.
Overly-competitive industry
Expediting and publicising successful prosecutions of more high-profile companies will underpin the seriousness of both the crime and punishment relative to tax fraud.
Unfortunately, the dearth of legal success and resources is taken as license by some agencies to continue to apply their creative tax and NIC models in order to take advantage of the much needed additional income it generates. This all leads to the fact that commoditisation of talent is happening at the lower end of the pay-scale.
Overwhelming pressure has been placed on the recruitment industry to reduce its costs, with profit margins sometimes being slashed to a level where no profit can be made via this margin alone.
This leads to less time being afforded to candidates and more processes being put in place that negate the recruitment agency role in educating, protecting and providing a level of care to its workforce.
The situation is such that even those agencies that want to maintain a quality service, adding value to its clients, are faced with the temptation of doing so by filling the income gap using tax avoidance as a means.
As an industry we need to get back to doing what we do well – sourcing, attracting and placing talent with our clients regardless of where on the pay scale the talent lies, rather than finding schemes to avoid tax to bolster our profits.
Unfortunately, until HMRC does what the headline suggests and lays down the law in black and white, the recruitment industry will not be able to play on a level playing field and will continue to score own goals as we chase profits.
Jeanette Barrowcliffe is finance director of recruitment consultancy, Meridian Business Support.
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