A new ‘failure to prevent the facilitation of tax evasion’ offence has been in force for several months but HMRC believe it is being largely overlooked.
In the case the businesses, the offence will be committed where an employer or engager fails to prevent someone who provides services for it or on its behalf, from evading tax. The key point is that employers are potentially liable for actions committed by those they engage. If workers are deemed to be disguised employees and therefore having failed to correctly account for tax and national insurance, the engager can be held liable.
The use of contractors has become increasingly common over the last few years. It is likely that a significant percentage of workers who define themselves as self-employed are in fact disguised employees. The government recently made it compulsory for public sector bodies to determine the employment status of workers and tax them accordingly, and is consulting on extending that obligation to the private sector. A business will have a defence against liability if it can demonstrate that it has put in place a system that identifies and minimises the risk of tax evasion. In practice, this means that will need to take a proactive approach to employment status issues.
In cases where the individual is engaged directly, a rigorous approach to determining if they are an employee or not, looking at the reality of the relationship as well as the wording of the contract, will be required.