The importance of compliance to recruitment agencies has been amplified like never before with the introduction of the Criminal Finance Act 2017. This recent legislative change makes recruitment agencies criminally liable in the event of failure to prevent tax evasion, either directly by their own staff or indirectly via an external agent. Under the scope of the legislation umbrella companies qualify as an external agent meaning the compliance of these relationships has been brought into sharper focus. Further underlining the importance of this, a significant number of rogue operators in the market are effectively flaunting the tax rules.
The best line of defence for agencies in remaining on the right side of the law in this increasingly complex legislative environment is to fully understand how their partners are processing pay to their contractors.
The starting point for verification and audit of umbrella practices should be to assess a random sample of payslips issued by the umbrella company to their contractors.
- Does the Invoice Total match the Hours x Umbrella Rate that you paid?
- Are there Company Deductions for anything other than admin fee, Apprenticeship Levy, Employers Pension, Employers NI and business expenses?
- Do the Company Deductions look consistent with what you would expect?
- Do the Business Expenses look disproportionately high, given that the only expense that is still available for deduction (following Finance Act 2015) is business mileage?
- Does the Gross Salary equate to the Invoice Total less the Company Deductions?
- If you divide the Gross Salary by the number of hours, is the rate at least National Living/Minimum Wage?
- Is there a different Taxable Salary Value to the Gross Salary?
If these raise any questions, get a full explanation in writing from your umbrella provider.
Real Time Information (RTI) Review
Requesting to see RTI reports is another recommended compliance check to compliment payslip checks. The rationale for requesting both is that the payslips on its own may not always be 100% reliable. A payslip could in theory be easily doctored whereas RTI information would be far more difficult to do so.
You should always read the RTI submission in conjunction with the payslip:
- Is the RTI submission the right format?
- Do the personal details on the RTI submission match the payslip?
- Does the Taxable Pay column match the Gross Salary?
- Does the TaxablePay, PayAfterStatDeductions, TaxDeductedOrRefunded,TotalEmpNICInPd and EmpeeContribustionsInPd on the RTI match Gross Salary, Net Salary/Pay Amount, PAYE, Employers NIC and Employees NIC on the payslip?
Obviously both payslips and RTI contain contractor’s personal identifiable information.
An umbrella company can only provide this information to an agency if the contractor has given consent or there is a legal obligation to provide (i.e. it’s in the contract). Furthermore all such information will need to be sent via a secured method and only used for the purpose it was intended for. This will become more important than ever before with the forthcoming General Data Protection Regulations (GDPR) coming into force from May 2018.