The government’s continuing quest to clamp down on tax avoidance schemes, including allegedly within the recruitment industry, is short-sighted and may end up costing the Treasury more in the long run. How so?
Quite simply, it’s because the government itself, in running all the many public services across the country, uses recruitment agencies to get the personnel it needs and outsources a high degree of its requirements to external firms.
HMRC introduced measures in 2014 aimed at dealing with tax avoidance in the contracting sector and, amid media reports this year of major recruitment firms allegedly dodging tax bills by exploiting various loopholes, has said it will take an aggressive stance in going after such firms and individuals.
It has been claimed, for instance, that if recruitment agencies were to use the Employment Allowance – allowing employers to slash the National Insurance payments of its staff by as much as £2,000 – to its advantage, they could establish any number of companies with hardly any staff and then claim the allowance.
Enormous organisations such as the NHS, with its gargantuan £95.6 billion annual budget, would, in fact, find it difficult to carry out their services without the use of intermediaries like umbrella companies and the estimated £1.8-£3.3 billion it spends every year on hiring them. Not using external services, which in the long run are far more cost-effective than filling NHS jobs in-house, would only lead to higher costs and a greater burden on the Exchequer.
It would mean that if HMRC managed to recoup taxes through any tax avoidance schemes in the recruitment sector that that cash would be spent on government agencies, some of whose services would still be outsourced. So we have to ask, in an industry worth over £32 billion, are umbrella companies actually a necessary evil, saving time and money for government institutions and helping them to operate as efficiently as possible?
The answer is, of course, a resounding yes – and instead of cracking down on such schemes, the government surely would be better off ensuring firms are compliant with relevant legislation, including laws affecting their directors. Multiwork, a leading electronic recruitment service that quickly matches jobs with candidates using mobile technologies, provides efficient and affordable ways for companies and organisations, including within government, to fill their posts and be in full compliance with tax and other laws at all times.
If HMRC does go ahead with its threatened crackdown, and it’s not entirely certain that it will – knowing the risks to the country’s essential services, such as staffing levels at the NHS, if it does – recruitment agencies will need to prepare themselves in advance. They will have to devise a Plan B so that they’re not adversely affected.
Next week’s blog will look at what such a plan might entail, so be sure to check back here and find out what steps might be taken to avoid being hit by any additional tax avoidance measures that may be introduced by the government, or any action taken against agencies.