By failing to enforce agency legislation, HMRC has failed tens of thousands of temporary workers, freelancers and contractors; and this failure – on an industrial scale – has cost innocent people dearly.
When answering a written question submitted by Sir Iain Duncan Smith, Victoria Atkins, Financial Secretary to the Treasury recently confirmed that:
Most agency workers must be treated as employees for Income Tax and National Insurance contributions (NICs) purposes by the agencies that pay them. These agencies are required to make deductions of Income Tax and employee NICs, where these are due, from the workers’ pay in the same way and at the same level as with direct employees. The agencies will also be liable to pay employer NICs, where these are due, in respect of payments to the workers.
However this rationale has not been implemented in relation to workers who worked through recruitment agencies and used umbrella companies, usually chosen via a preferred supplier list from the agency in question. If HMRC had fulfilled their duty to police this sector properly and enforce compliance upon the agencies, there would have been no need to legislate for the Loan Charge because agencies would have been forced to ensure that PAYE deductions were taken the workers pay.
To date there has been no credible explanation regarding the lack of enforcement of agency legislation, nor why this duty has been circumvented by HMRC in favour of pursuing individuals directly for the unpaid PAYE and NICs.
Instead of pursuing agencies for non-compliance, HMRC has sent s.684 notices to individuals transferring liability for outstanding tax and NICs to them, thereby circumventing the PAYE system and deliberately not enforcing agency legislation. Furthermore, the s.684 notices issued by HMRC suggest that the the employer had “no UK presence”, despite the fact that it is usually a UK-based agency who has engaged that worker. It is clear that HMRC have not adhered to their stated approach, because if they had then enquiries would have been issued to the UK corporate
entity that was part and parcel of the umbrella arrangement.
By not enforcing agency legislation HMRC has failed in their core enforcement duty, and this failure led to the persecution of tens of thousands of innocent workers in relation to the Loan Charge. Astonishingly, the Loan Charge legislation itself and the resulting devastation would not be necessary if HMRC had done their job properly.
This fundamental breach is both shocking and unacceptable, so influential MPs from the Loan Charge and Taxpayer Fairness APPG have written to the Financial Secretary to the Treasury demanding answers. They raise a number of critical questions:
- You state that HMRC has a “risk-based approach towards compliance activities and will investigate evidence of non-compliance or avoidance”. Can you provide to us, any evidence to back-up this statement and also provide, examples that demonstrate, that HMRC have indeed pursued and investigated non-compliance and/or avoidance?
- Can you confirm, the number of agencies that HMRC have found to be non-compliant between 1999 and 2017?
- Can you confirm, the value of any tax that HMRC believes should have been paid from non-compliant activity by agencies between 1999 and 2017?
- Can you confirm the value of the tax collected by HMRC following enforcement action regarding non-compliant activity of agencies between 1999 and 2017
- Can you advise and give examples of any action taken by HMRC, to retrospectively pursue agencies for non-compliance of the Agency Rules?
- Why is the Government allowing HMRC to aggressively pursue people with pre-9th December 2010 open enquiries, when the Morse Review gave this as a cut-off date?
Tragically there have been nine suicides linked to the Loan Charge, HMRC’s disastrous policy which pursues individuals for unpaid tax and NICs instead of the agencies who were actually liable for the payments. Many victims were encouraged to, and in some cases given no other choice, join tax schemes by the same agencies who have so far escaped justice.
In short, HMRC’s failure to enforce pre-existing agency legislation has let down tens of thousands of temporary workers, freelancers and contractors. We will keep you informed of any response from the Financial Secretary.