New tax system worries the REC, sees recruiters lose business

Wed, 22 Oct 2014 


Updates to the Income Tax (Earnings and Pensions) Act 2003, which have been in action for about six months, have led to some concerning trends, including a recruiter losing more than half its business, the Recruitment & Employment Confederation says.

As Recruiter reported yesterday, (21 October) REC chief executive Kevin Green said the National Insurance Contributions Bill, linked to the Act, was flawed as it puts the onus on the intermediary in the supply chain, the payroll company for example, to ensure all is above board.

He said in the last six months some concerning trends had emerged that stemmed from people trying to avoid being paid under PAYE, which the Act now requires them to.

For example, one REC member lost 65% of its business when it said to its workers it was going to move them from a CIS [Construction Industry Scheme] tax system to PAYE.

That would have effectively cut their take-home pay, but given them benefits such as access to welfare should they suddenly find themselves jobless.

They decided ‘money in the hand’ was more important though and the recruiter’s client directly employed those workers. 

REC head of policy Kate Shoesmith told Recruiter in another case, workers moved to another agency to avoid being put onto a PAYE system.

She said the REC was worried those people may not fully understand the implications of chasing the money, rather than moving to PAYE.

The most problematic thing, she said, was the speed in which the new systems had been implemented. Provisions in the Act came into effect in April after a very quick consultation period and although REC members had been trying to get guidance from HMRC, it had not been addressed. 

In light of that, it was worrying that it had been proposed that new provisions under the NIC Bill were to be backdated to April.

She said people will not be aware of their liabilities because of the short timeframe and companies may need to renegotiate contracts with all levels in their supply chains.