According to Recruitment & Employment Confederation (REC), updates to the Income Tax (Earnings and Pensions) Act 2003 has caused a recruiter to lose more than half of its business. For about 6 months the updates have been in action.
Kevin Green, REC chief executive, in a report, said the National Insurance Contributions Bill, which is linked to the Act, was flawed as it put the burden on the intermediary in the supply chain to ensure all was above board. He cited an example of a payroll company and said, “This legislation only tackles the payroll company and makes it totally accountable, while it ignores the company [end employer] and the worker.”
The REC chief has called for the bill to ensure each level of the supply chain was equally accountable. “If it’s going to just pick on one level, we’re going to get a very, very distorted labour market and have more self-employment.”
According to Mr Green, the last 6 months has witnessed concerning trends with people trying to avoid being paid under PAYE, which the ACT now requires them to.
For instance, a REC member lost 65% of their business when it informed its workers that it was going to move them from a CIS [Construction Industry Scheme] tax system to PAYE. Effectively this would have cut their take-home pay but they would have received benefits such as welfare access should they have lost their jobs suddenly.
Because the workers concluded that ‘money in hand’ was more important, the recruiter’s client directly employed those workers. In another similar case workers moved to another agency to avoid operating through the PAYE system.
Kate Shoesmith, Head of policy for REC, said it was worrisome that workers did not fully comprehend the implications of chasing money rather than moving to PAYE. She found the speed at which new systems were being implemented as a huge problem.
Provisions in the Act came into force in April after a quick consultation period and without HMRCs participation. In view of this, it is somewhat alarming that HMRC has proposed the new provisions under the NIC Bill to be backdated to April. Kate added that people won’t be aware of their liabilities because of the short timeframes and companies will need to renegotiate contracts with all levels in their supply chain.