Could you recruitment agency afford a £260k tax bill?

A Recruitment agency specialising in the Healthcare Sector (K5K) has been ordered to pay a £260k tax bill after having had its appeal regarding the ‘Section 44’ legislation dismissed at a First Tier Tribunal hearing.

HMRC are continuing to crack down on the flexible supply chain and this is another instance of a business not understanding their obligations and seeking correct legal advice when engaging with contractors.

Section 44, commonly known as the onshore/offshore intermediaries’ legislation, was originally introduced in 2014 to stop recruitment agencies from supplying sole traders.

If these rules are broken and false self-employment is identified, the recruitment agency is liable for the unpaid tax and national insurance contributions plus, any further HMRC fines/penalties. Similarly, to IR35 rules!

Why was the recruitment agency liable?

The recruitment agency essentially issued the incorrect contract, an agency worker contract. The correct contract should have been for engaging with PSCs (limited companies) and despite the agency paying into a PSC, the court ruled that payments fell under Section 44 and therefore had been taxed inappropriately.

This highlights the importance of recruitment agencies placing contractors under the correct contract and employment status. If not, it can have significant tax implications for the agency.

All recruitment agencies should ensure they are rigorously assessing both the contract and working practices of those contractors placed!

Speak to a legal expert and ensure your supply chain is fully compliant!


To receive free legislation updates and training or to book a contract review, please get in touch!