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What recruitment agencies need to do fast to not fall foul of the Criminal Finances Act 2017.

The smoking gun that recruitment agencies and freelance contractors can’t afford to ignore

Time is running out for recruiters and contractors to get their books in order in time for the Criminal Finances Act 2017.


It includes HMRC’s new Corporate Offence of Failure to Prevent the Criminal Facilitation of Tax Evasion.


You now need to be fully prepared for this law. It comes into effect on September 30th and it’s powerful stuff.


The fall-out for recruitment agencies


The law’s relevant whether you’re a recruitment agency contracting in the UK or to overseas.

You might assume it’s only banks, accountancy and advisory firms that are affected. But you’d be wrong. The law applies to all companies, partnerships and LLPs.

So there’s an impact for recruitment agencies too. The supply chain, labour arrangements and overseas aspects of the law are relevant to all organisations.


And it could result in criminal sanctions for any recruitment agency directors discovered to be in breach of tough new rules.

The fall-out for freelance contractors

The law affects you if you’re a contract worker in the UK or overseas. It means there’ll no longer be any place to hide.


Although the new law doesn’t apply to individuals as they can be prosecuted under existing laws, you still need to make sure you’re 100% tax compliant. Why?


Because your recruitment company, umbrella company or offshore payroll provider can’t now knowingly provide any tax avoidance ‘smoke screen’ for you. It’s obliged to disclose tax evasion by those on its books. Or suffer the consequences.


So how might you be affected?


First, the bad news. It’s a potential can of worms and means you can’t afford to put your head in the sand. You need to take action fast.


Second, the good news. You can take immediate measures to ensure your risk exposure is watertight.


What does the law say?


For an offence to be committed:

  • There must be criminal tax evasion under either UK law or foreign law
  • It must be enabled by the business’ employee, agent or anyone performing services to the business
  • The business must have failed to prevent that person from enabling the crime

The offence itself will have three stages:


Stage 1: criminal tax evasion by a taxpayer. This could be the offence of cheating the public revenue or fraudulently evading the liability to pay VAT.


Stage 2: criminal facilitation of this offence by a person acting on behalf of the corporation, whether by taking steps with a view to; being knowingly concerned in; or aiding, abetting, counselling, or procuring the tax evasion by the taxpayer.


Stage 3: If there has been a criminal offence at stage one and stage two, a corporation is then liable for having failed to prevent a person associated with it from committing the criminal act at stage 2.

What do we recommend recruitment companies should do?

The only defence mechanism you’ll be able to use is to show you’ve put ‘reasonable procedures’ in place to prevent facilitation of tax evasion.


This means you’ll need to be 100% clear on the risks associated with your contractors, employees, third parties and all their downstream activities.


The legislation covers ‘overseas offence’ too. A relevant body incorporated in the UK can only commit this. Or one that does business from a permanent establishment in the UK. Or whose associated person commits the overseas facilitation offence in the UK.


So you could be liable if someone associated with your recruitment agency knowingly assists a contractor in evading tax in the UK or overseas. Or if you know that a contractor is evading tax in some way.

Our practical advice for recruitment companies

  • Read the legislation in full
  • Carry out a thorough risk assessment
  • Analyse your internal processes
  • Get commitment from your top-level management to develop a culture where tax evasion is never acceptable
  • Hold a training session so your employees understand this and the rules – We are currently running sessions with our agency partners
  • Check that all of your preferred providers such as your umbrella companies or contractor accountancy providers can prove they follow high professional standards

Still got questions on how to deal with the Corporate Offence of Failure to Prevent the Criminal Facilitation of Tax Evasion? Then take professional advice.  We can help you here.

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