PROFESSIONAL PASSPORT

Transcription

1 PROFESSIONAL PASSPORT RESPONSE TO HMRC CONSULTATION DOCUMENT EMPLOYMENT INTERMEDIARIES AND TAX RELIEF FOR TRAVEL AND SUBSISTENCE 25TH SEPTEMBER 2015

2 Contents CONTENTS About Professional Passport Executive Summary Learning - The application of the tests in construction Hard Data - Revealing the facts Legislation - The existing legislative framework Reactions - For every action there is an equal and opposite reaction

3 ABOUT US PROFESSIONAL PASSPORT About Us Professional Passport Professional Passport is a specialist organisation that works across all sectors of the temporary workers market providing support and direction to companies seeking to operate with robust compliance. Since our formation in 2007, we have looked to raise the levels of compliance across the temporary workers market both in awareness and application. Our work with end clients, recruitment companies, service providers and contractors provides us with a unique view and understanding of the market. An important part of the work we do is to formally assess the processes and procedures of services providers operating in the umbrella and accountancy services sector. Where a provider successfully meets our required standards, confirmed by an extended visit to their offices to fully evidence the correct operational processes in application, they become an Approved Provider of Professional Passport and their name is added to our Approved Provider listings. Whilst there are a number of organisations that offer compliance assessments Professional Passport remains the most widely accepted, recognised and trusted assessment of provider compliance in the market. Our current Approved Provider listings are made up of 22 umbrella providers, 3 CIS gross status umbrella providers and 18 accountancy service providers; representing more providers than any other available standard. Professional Passport also works closely with recruitment sector trade bodies APSCo, the Association of Professional Staffing Companies, and TEAM, The Employment Agents Movement. APSCo and TEAM require any service provider, who wishes to promote their services to their recruitment company membership, to have undergone and passed one of a number of compliance assessments before they will be accepted as affiliate members. Professional Passport assess more of the service providers for these bodies than the other offerings put together. In recent years we have seen a dramatic increase in the numbers of payment intermediaries coming in to the market, many looking to offer an umbrella service. The knowledge and application of the required operational processes and procedures was low as there was no trusted reference points for those seeking to operate compliantly. For this reason we wrote The Compliant Umbrella Providers Operational Handbook. This manual was designed to create a benchmark standard for compliance and has been invaluable in raising the understanding and application of compliance in the sector. We have supplied a number of copies of this book to HMRC officials and we would happily supply further copies if HM Treasury would find it of use in this review.

4 ABOUT US PROFESSIONAL PASSPORT In setting the standards across the sector Professional Passport has taken a clear and transparent approach. We publish regular Newsletters to support this approach. Provider Newsletters Our provider newsletter is available to all our approved providers and clearly sets out our views and position on new emerging models entering the market. It also updates the providers on any required changes to operational processes and procedures to ensure ongoing compliance. Agency Newsletters Our agency newsletters are designed to inform recruiters on emerging models and associated risks as well as update on new legislation impacting the sector. These are subscribed to by over 2,000 individuals. Contractor Newsletters These are aimed at our contractor membership and are sent to over 12,000 subscribers. They are designed to inform and educate contractors on the available structures and associated risks. Our newsletters and guides help support our clear and transparent approach to compliance and assist workers in making informed choices. Professional Passport was the first of the compliance assessment standards to refuse to assess any provider who operated, or had any form of association to, Pay Day by Pay Day models, prior to HMRC s statement expressing their views. We were also the first to refuse to assess any provider offering a selfemployed payment intermediary solution in the general contracting marketplace; long before HMRC published the consultation paper. We refused to assess any organisation seeking to use contrived LLP structures within their service offerings, once again before these rules were changed. We have never worked with any provider offering tax avoidance or offshore arrangements. The consistency and clarity of messages has resulted in us becoming the trusted compliance assessment of choice for hundreds of recruitment companies. These recruitment companies rely upon our Approved Providers for the delivery of services to the appropriate workers. This results in a commercial advantage to our approved providers for demonstrating high levels of compliance. We have worked closely with HMRC throughout in both highlighting, informing and addressing some of the issues that have emerged in the market.

5 ABOUT US PROFESSIONAL PASSPORT We are now seeing end client awareness rising on the issue of supply chain compliance and we have a number of end clients that insist their recruitment partners can only accept workers through companies that have passed the Professional Passport compliance assessment. Professional Passport has pro-actively campaigned since formation for a more level playing field for the providers that seek to operate compliantly as in many cases they have consistently operated at a commercial disadvantage. This has included issues such as: Tax Avoidance Offshore Payment Intermediaries Pay Day by Pay Day Dispensations Expenses Margin and Fee Deductions IR35 Whilst progress has been made in some areas there is still much to do and we welcome any opportunity to become involved in active discussions and debates that are designed to deliver a more level playing field in the market. Should you require any clarification on our thoughts contained within this response document, or wish to discuss any of the ideas in more detail, please feel free to contact us. Crawford Temple, the managing director of Professional Passport is also the Chief Executive Officer of PRISM Association a trade body representing service providers in the sector.

6 Executive Summary EXECUTIVE SUMMARY Professional Passport has been involved in the submission made by PRISM Association and fully agrees and supports the points made within that submission. We would also like to highlight further issues that we believe should be considered fully before pressing ahead with the proposals. The Problem At no point through the consultation process have we been moved from our original position, as we documented in our submission to the Discussion document, that the majority of the shortfall is as a direct result of non-compliant providers in the market; where HMRC has defined the parameters of compliance. We believe a simple,fast and effective approach would be to amend the existing legislation framework, specifically National Minimum Wage Regulations and the liability clause within the Onshore Employment Intermediaries Legislation to ensure that Pay Day by Pay Day and The Elective Deductive Model providers are prevented from operating as they do now, as well as restricting their access to the market. All the evidence that we have indicates that this would address a significant part of the identified tax shortfalls. By protecting the majority of the identified tax revenues through these amendments a detailed review of the market could be carried out, supported fully by the new data coming in as a result of the agency reporting. This would then allow time to fully discuss and agree a robust framework for compliance going forward. Postpone Subject to Review Where amendments were made to secure the majority of the at risk tax revenues, as we have described above, would suggest postponing the broadening of these tests. We would suggest a full review and investigation is carried out in the construction sector, as the tests have been in application for 18 months in this sector. This review could highlight what has worked well, what has worked less well and what changes need to be made. The result would be a more robust set of rules based on market application and if still considered necessary the newly amended rules could be extended across the whole market. We would also propose that this reviews aligns to work currently underway with BIS and OTS as well as a wide reaching review of existing legislation across the sector with a view to simplifying and removing many of the sticking plasters that have had to be applied to address unintended consequences.

7 EXECUTIVE SUMMARY Insured Solutions We are already seeing the emergence of insured solutions arriving in the construction sector. Many of these are claiming full protection against a successful HMRC challenge to SDC status and cover both tax and penalties. The lessons that can be drawn from both IR35 and factors that drove The Managed Service Company legislation is that where insurance is offered to cover tax and penalty liabilities over time it undermines the correct application of the rules. We believe that many of these insurances rely on the lack of resources HMRC has to carry out effective enforcement and mount significant challenges. These offerings will create significant market distortions and if left unchecked will provide further commercial advantages to those seeking to circumvent the rules. Construction Sector The rules have been in application for 18 months in the construction sector. During this time we have seen significant variances in their application with smaller companies being given commercial advantage over larger organisations that are attempting to apply the rules as intended. The commercial reality is that large organisations will always have to take a risk adverse approach in making the assessments. During round table events questions were asked by construction sector companies providing real world examples of situations they are asked to assess. HMRC were unable to provide answers and suggested that further guidance could be issued. This lack of certainty on the outcome of the tests is creating market distortions that provide significant advantages to companies that are not applying the tests as originally intended with larger businesses, or smaller companies that are trying to comply, suffering. Fast and effective compliance enforcement A point made by almost every construction sector firm at events was that there has been a complete lack of support or enforcement from HMRC in ensuring the tests are applied consistently across the market. Whilst HMRC are unable to comment directly on compliance activity what must be recognised is that the current structure fails to work in the modern business world. The length of time from enforcement to action is, as stated by HMRC, 4-5 years. Where HMRC push responsibility to assess outcomes of tests coupled with liabilities where these are later found to be incorrect this does not reduce HMRC compliance enforcement requirements it does the opposite. Without visible, fast and effective enforcement non compliance increases and the compliant providers are faced with a stark choice; accept the loss of business or weaken the application of tests.

8 EXECUTIVE SUMMARY The situation we are seeing emerge in the construction sector is almost exactly the same situation that has allowed non compliant payment intermediaries grow their businesses unchecked and create market distortions that the current proposals seek to address. Without a fundamental review of HMRC enforcement non compliance will increase if these rules were extended across the market. Advisory List and guidance During presentations and events HMRC made it clear that, in their opinion, there were a number of occupations and sectors that would always be caught. Whilst this in principle would help, what we have seen in construction is that many of the assessments fall on the cautious end of the scale. We believe that more detailed guidance in construction is required on occupations that would be considered as and as a result we would developing a list where HMRC feels occupations are outside of the SDC test. It was clear through these events that the construction sector needs more detailed guidance on situations where it was felt SDC would not apply. Summary We believe that if these proposals are followed through they will create significant market distortions that would provide commercial incentives to those that failed to apply the rules as intended. The volume of change as a result of the combination of the Finance Bill and these proposals will result in confusion in the market, perfect for the non-compliant providers. The overall result will be HMRC missing their targeted tax revenues, an increase in non-compliance and many compliant businesses suffering to the point that they either cease to exist or have to change their models to less robust versions in order to survive. With no reference to enforcement and how the current structure will be changed to provide a much faster response, more aligned to the speed that modern businesses move and adapt, non-compliance has a 3-4 year window of opportunity. These proposals represent a step backwards for the market and compliance based solely on an increased tax take that is very unlikely to happen.

9 LEARNING THE APPLICATION OF SDC IN CONSTRUCTION Learning The application of SDC in construction A review of the construction sector where the proposed tests have been in application for 18 months shows that significant market distortions are occurring. This appears to be for a number of reasons: The difficultly in accurately assessing an outcome The liabilities that result of an incorrect assessment Assessments being made on risk adverse basis by many businesses resulting in many workers gaining false employment New companies emerging that are not applying the tests robustly but gaining significant commercial advantages Emergence of insured solutions creating further market distortions Lack of immediate enforcement by HMRC to redress the balances where market distortions appear Companies trying to apply the tests are being disadvantaged as the tests are complex, vague and lack certainty meaning it is difficult for those companies trying to apply them as intended to do so with enough confidence to mitigate the risks. This suggests that a review of the tests should be carried out before their reach is extended. This review would allow a common set of workable tests could be applied across all sectors which seems to be one of the intentions. Applying the same tests and expecting a different outcome in market conditions and reaction is fool hardy. As we stated in all our previous communications this will still need to be supported by an effective enforcement regime that has the ability to act swiftly to address any market distortions or unintended consequences.

10 HARD DATA REVEALING THE FACTS Hard Data Revealing the facts As the new agency reporting is now in place we would suggest an analysis of this data is carried out to identify the current make up of the market. We are certain that this analysis will support our conclusions that there is a significant market share operating through PDPD providers. It will also help identify those companies that have a significantly high volume of self-employed workers engaged suggesting, on the surface of it, that closer inspection is required. We believe that any development or extension of these tests should only be considered once the full facts are known and understood. This analysis will also allow HMRC the time to consider their compliance activity that will be required to ensure the level playing field is achieved, which has not been the case so far.

11 LEGISLATION THE EXISTING COMPLIANCE FRAMEWORK Legislation The existing legislative framework The current shape of the market and the issues this consultation seeks to address are a direct result of the lack of compliance activity to address non compliance in the market. HMRC are unable to comment on their activity but what we see are providers who have been disregarding the rules for many years and still openly marketing and operating as they have done previously. This suggests that if HMRC has high compliance activity it is ineffective and outdated in the modern business environment where companies can change, adapt or reinvent themselves overnight. HMRC has many powers available to them to prevent these situations, for example security notices, and we would suggest a review of how these can be utilised more effectively in the market. The introduction of RTI also provides an important tool and should highlight many arrangements that appear to be incorrect, as does the new agency reporting requirements. HMRC needs to be put in a position that allows them to act swiftly to address market distortions, unintended consequences and non compliance. Without the application of rules being enforced the rules become meaningless and provide windows of opportunities to those that are prepared to disregard them. Re-billable / chargeable Expenses An area that needs specific guidance is where a worker can reclaim some of their expenses back from the recruitment company or end client. Whilst the responsibly run providers operate this area correctly we see many variations and interpretations including recruitment companies paying the expenses directly back to workers without umbrella companies knowing as well as payment intermediaries paying them directly to workers without any application or consideration of PAYE implications. With the new employer expense rules together with the changes in the Finance Bill this is an area that needs to be clarified to ensure clarity and consistency of approach.

12 REACTIONS FOR EVERY ACTION THERE IS AN EQUAL AND OPPOSITE REACTION Reactions For every action there is an equal and opposite reaction We believe that a broader review of the legislation applying to the sector is carried out. Many of the layers of complexity in the legislation are as a direct result of attempting to address unintended consequences resulting from a previous change. We believe that market has now matured to a point where it is possible to create a long term strategic plan and simplify many of the layers that currently exist. We would suggest this review is carried out by The Office of Tax Simplification, as it seems to align with their objectives perfectly, and it should extend beyond just the tax aspects and include BIS as they are responsible for the agency regulations. By having the OTS carry out the review the findings could also help inform many of the other areas they are currently looking in to and remove the seemingly endless discussions and consultations currently being issued. This would create a more joined up approach, something that seems to be lacking at present.

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