In our industry it is generally accepted that 'compliance' means compliance with laws, particularly tax laws. Of course laws can be interpreted in different ways. This keeps lawyers and tax advisers in a job but can give Legal and Compliance teams in agencies huge headaches. Providers can produce counsel's opinions that say 'this scheme works' - the trouble is these opinions are often procured because HMRC does not agree.
At PayStream we take a low risk approach so our starting point is always 'what would HMRC consider to be compliant?' For example HMRC has made it very clear that it will pursue offshore schemes and 'pay day by pay day' models so even the most robust counsel's opinion would not persuade us down those routes. We regularly engage with tax advisers, lawyers and most importantly HMRC to keep up with changes in legislation or HMRC's approach. Why should agencies be concerned about service provider compliance?
Financial risk - here is risk of debt transfer under MSC legislation if agencies work with a service provider who is 'involved' with its clients. If the contractors are using offshore schemes HMRC can use host employer regulations to pursue UK hirers for unpaid tax. In addition, as announced in the budget, there is currently a consultation in respect of new legislation to formalise the automatic transfer of liabilities to third parties which would include recruitment companies and their clients where offshore schemes are used.
Reputational risk - agencies spend time and money on building their brand so being associated with a non-compliant provider makes little sense particularly since clients are becoming more and more interested in a compliant supply chain. The public sector and the banks now look for assurance that contractors are paying the right amount of tax.
Culture - if you are trying to embed a culture of doing the right thing for contractors it makes sense to look at the culture and values of your suppliers.
Value - if you are looking for an exit you will need to demonstrate to a purchaser that your earnings are sustainable. For example if you work with a partner using a 'pay day by pay day' model a purchaser will undoubtedly look to discount your earnings on the basis that HMRC will challenge the model. Similarly the multiple attached to business profitability is easily discounted if noncompliance is identified.
Personal responsibility - the directors of companies are responsible for determining the risks the business is willing to take. If trying to build risk resilience into a business it would be hard to explain the use of offshore schemes in the current market. What is the best way to determine a service provider's compliance?
Agencies have differing approaches:
Ensuring compliance internally
At PayStream we have a compliance team of 6 people who understand exactly how the business should operate. The key is to ensure that the rest of the business has the same understanding. To that end we have:
This allows the internal compliance team to monitor and assess the rest of the business against our compliance templates. This happens on a monthly basis and the sales team commissions are contingent on passing these compliance audits which is a powerful motivator.
Very importantly we get external auditors (BDO and Professional Passport) to vet our processes and to audit the audits. We get a certificate of compliance from both parties and their comments are fed back to the business by the compliance team.
By focussing, from a compliance perspective, on our interaction with contractors and agencies we identified areas where we can improve our customer service and again part of the compliance team's job is to feed this back to the business.Conclusion
We believe that our stance on compliance puts us in a strong position to grow our business. Clients, now more than ever before, are keen to ensure a compliant supply chain. This means that agencies are looking more closely at what service providers actually do and are gravitating to those that can demonstrate that they are operating compliantly.
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