Employers using temporary workers are being warned they could face unexpected tax bills and HMRC scrutiny if recruitment agencies or umbrella companies within their supply chain fail to meet their PAYE and National Insurance obligations.

Ashlea Fisher, founder of Wiltshire-based recruitment specialist iRecruit4, says too many businesses wrongly assume their recruitment provider is meeting its legal obligations, leaving employers exposed to potentially significant financial and reputational risks.

Under HMRC’s joint and several liability and tax avoidance legislation, organisations within a labour supply chain may be held responsible for unpaid PAYE tax and National Insurance where HMRC believes they have failed to take reasonable care to avoid non-compliant agencies. The Government has increased its focus on tackling tax avoidance and non-compliance within any labour supply chains.

Ashlea, who has worked in recruitment for more than 20 years, says many employers have no idea the risks they are taking.

“Many employers don’t realise they could face HMRC inquiries and significant disruption if problems are uncovered in their labour supply chain. Employers often assume because they’ve appointed a recruitment agency or an umbrella organisation, everything behind the scenes is being handled properly. Unfortunately, that simply isn’t always the case.

“When temporary workers are employed, agencies or umbrella companies are responsible for operating payroll and should be operating PAYE correctly, making the appropriate Income Tax and National Insurance deductions, paying Employer’s National Insurance contributions rather than attempting to avoid them, and ensuring workers receive their statutory holiday pay and other statutory employment entitlements where applicable. Some operators deliberately avoid these responsibilities because it increases their profits, and employers often won’t realise what’s happening until HMRC comes knocking.”

Ashlea says the consequences can extend far beyond the recruitment company itself.

“If HMRC discovers tax hasn’t been paid correctly, it doesn’t always stop with the agency responsible. Employers may also become subject to HMRC inquiries where concerns arise about compliance in their supply chain. This could potentially lead to ‘transferred tax liabilities’, financial penalties, legal costs, business disruption and reputational damage with customers, employees and other stakeholders,” she warned.

Ashlea believes the problem is more widespread than many businesses appreciate.

“”This isn’t an isolated issue. We see examples across the UK where ethical recruitment businesses are being undercut by organisations that ignore the rules.”

To help businesses protect themselves, iRecruit4 is offering employers a free audit of their temporary labour supply chain. The review identifies potential compliance risks where businesses may wish to strengthen their due diligence.

“Prevention is always easier than dealing with the impact when it’s too late.  A simple due diligence check could save a business thousands of pounds and ensure temporary workers are being treated fairly. We already implement safety audits for our clients around supply chain transparency. This means our clients can access forensic audit reports to independently verify compliance for their own peace of mind. Our clients can cross reference documents including payslips issues to workers against Real Time Information (known as RTI) submissions sent to HMRC to guarantee taxes are properly accounted for.”

Based in Wiltshire, iRecruit4 has built its reputation on transparent, compliant and ethical recruitment services, supplying temporary and permanent staff across a wide range of sectors. For more information or to arrange a free recruitment supply chain audit, email Ashlea@irecruit4.co.uk