How the Criminal Finance Act will affect recruitment businesses

Tuesday 2 January 2018

From 30 September 2017, the Criminal Finances Act 2017 will come into force and will make companies criminally liable if they fail to prevent tax evasion by either a member of their staff or an external agent, even where the business was not involved in the act or was unaware of it.

Not adhering to the new Act can lead to a conviction, unlimited penalties, and a damaged reputation in a very competitive recruitment market. Tax evasion is already an offence, but up to now it has not been possible to attribute criminal liability to the firm where it occurred. In April 2017, the Act became law, and it is now confirmed that it takes effect from the autumn. The new rules cover both UK and overseas taxes.

The new rules target deliberate and dishonest behaviour and for a recruitment agency this will specifically affect their supply chain and how they manage this.

There are 2 main threats to the recruitment industry:

  • Candidates using, or being referred to providers who promote high levels of take home pay through tax avoidance schemes. These can be difficult to identify without a robust compliance process and recent articles in the press will highlight these issues.
  • Recruitment consultants referring candidates to providers for personal gain. This is a bit of a taboo subject but we know this is relatively common place and the consultant is unlikely to have the same commercial awareness or consider the risk this is bringing to their business and its Directors.

In recent years, there has been a number of changes which has meant that corporate risk applies to recruitment businesses, their directors, and their end clients should the supply chain engage with a non-compliant Umbrella Solution or Accountancy Services provider. The recruitment supply chain has never been under more scrutiny. Increasingly, the responsibility for decision-making has been moved by successive legislative changes from the contractor to the (presumably) more risk averse recruitment business or, in the public sector, the end client.

The ideal solution is to have, and to enforce, a PSL of compliant providers for both Umbrella employment solutions and Limited company accountants, offering choice to your candidates. It is imperative that these companies are carefully selected and the agency completes a thorough audit to ensure they are compliant and do not bring any risk to the recruitment agency.

Some recruiters may not think they are entitled or even legally allowed to refer their candidates to one company over another, but there is no formal obligation preventing them from doing so. In fact, referring candidates to good service providers can be an important factor in strengthening your own relationships with them. There can be huge benefits to maintaining and enforcing an effective PSL. It helps to reduce the recruiter’s costs and administration by saving time on research and compliance checks every time a supplier is needed.

As part of the Criminal Finance Act, a business may avoid criminal liability where it can show that it had implemented reasonable prevention procedures, or where it can show that in the circumstances it would have been unreasonable or unrealistic to have expected it to have had procedures in place. For a recruitment agency this means

  • Ensuring that your supply chain is compliant
  • Making certain that your consultants are using the correct supply chain
  • Agreeing any commercial terms or referral fees upfront and that they are agreed and signed for by the Directors of the recruitment business and your service provider.

Brookson have been helping agencies manage their supply chain risk for years and have expertise in Legal and Compliance to be able to give the correct advice to recruitment owners and Directors.

Brookson have also created a blog on ‘5 ways recruitment agencies can reduce risk for contractors’. To read this blog click here.

By Victoria McDonnell

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