On 1 March 2022 Ian Hyde, head of tax disputes team at Osborne Clarke, joined Stacey Mills-Kelly, Assistant Director, Head of Strategies - HMRC Fraud Investigation Service, to give a webinar about latest HMRC tax enforcement activity
Investigations are starting - transparency and appropriate checks will be critical to reduce risk
On 1 March 2022 Ian Hyde, head of tax disputes team at Osborne Clarke, joined Stacey Mills-Kelly, Assistant Director, Head of Strategies - HMRC Fraud Investigation Service, to give a webinar about latest HMRC tax enforcement activity. In particular they looked at how HMRC can use the Criminal Finances Act 2017 to investigate and, where appropriate, prosecute organisations involved in facilitating tax evasion.
In a typical labour supply chain situation end users and staffing companies have a particular exposure to companies they rely on to pay workers, including umbrella companies or overseas payroll partners such as employer of record companies. If those umbrella companies or overseas payroll partners are involved in tax evasion the end users and staffing companies who use them may face prosecution and unlimited fines unless they have in place reasonable steps to prevent facilitation of tax evasion. HMRC has recently described one type of umbrella scheme (Mini Umbrella Company arrangements or "MUCs") as tax fraud, and end users and staffing companies would therefore be expected to have in place procedures designed to spot whether there are arrangements like MUCs in their supply chains, and if so to stop using them.
Two key points were highlighted by HMRC in the webinar:
- HMRC is now visiting large businesses (the top 2,000 in the UK) to check, as part of the normal pattern of HMRC risk reviews, what prevention procedures they have in place to police their supply chains. We understand that many large businesses are concerned about this review and we expect they will require their staffing company suppliers to evidence that they are carrying out appropriate checks on their supply chains in the UK and overseas. If suppliers cannot show that appropriate checks are being carried out (and that means more than checking they are accredited by a trade body) then large businesses may require more checks to be done to avoid HMRC treating the business as high risk.
- HMRC has 14 live investigations under the CFA and is looking at 40 "opportunities" to use the legislation. It is not clear what sectors these investigations and opportunities relate to but HMRC confirmed in the webinar that, following recent publicity about labour supply chains, that was seen by HMRC as a high risk area.
To be clear, by no means all umbrella or employer of record-style arrangements involve tax evasion, and the good ones will welcome this crackdown on those operators who undercut them with unlawful tax schemes. But that crackdown will require good ones to be very transparent about how they pay workers, and will require end clients and staffing companies to be carrying out appropriate checks on entities they use to pay their workers.