End of road for payroll company kickbacks

Grant Prior 6 years ago
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Payroll companies are being accused of giving “kickbacks” to labour agencies and contractors to keep their workers self employed.

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The industry is facing a massive clampdown in April when Government plans to stamp out agency self-employment come into force.

Firms operating in the multi-million pound payroll and agency sectors fear the changes will blow a massive hole in their business.

Thousands of construction workers are employed via payroll companies who typically charge individuals up to £25 a week to manage their self-employed tax affairs.

The Enquirer understands some firms have been offering “rebates” of £10 a week per worker to agencies and contractors who use them

One tax expert said: “This has been going on a for a long time and everyone has been turning a blind eye.

“But there’s a lot of money involved.

“Payroll firms who work with agencies will hand some of their fees back to keep workers employed through them.

“The money goes straight into the pocket of the agencies or contractors they are working for.

“Some of these firms have grown to have massive influence in the industry and the tax man has had enough of it.”

The new measures in the draft Finance Bill will hit at least 200,000 construction workers – with some experts estimating that figure could double.

The changes will result in an estimated £520m tax haul for the chancellor.

The bill states: “The engager and employment intermediary often share between them the employer NICs and employment rights savings, with the worker receiving very little, if any, financial benefits from these arrangements.

“In recent years there has been a rapid growth in the number of intermediaries being used to facilitate false self-employment by exploiting weaknesses in the existing legislation.

“This model initially started in the construction industry and grew rapidly there.

“Unsuccessful challenges by HMRC using the existing legislation, alongside aggressive marketing of these schemes, has increased the rate of growth of these models.”

One of the leading payroll firms has also hit out at the practice of kickbacks.

Hudson Contract Services Ltd said: “We would welcome a clampdown on the practice used by many payroll companies of taking fees from workers to give back to clients as kickbacks.

“We are compelled to draw three distinctions between these companies and Hudson; firstly Hudson is not simply a payroll company, (the services we provide to our clients are far more complex than that of simply payroll), secondly we never charge the operatives a fee, and thirdly because we do not charge the operatives a fee, we cannot offer rebates.

“We have been approached by many high street agencies over the years, who mistakenly expect us to charge the operatives and pay a rebate. Our answer is always the same ‘we don’t deal with agencies and we have not and never would give rebates’.

“These practices have long since been a cause of frustration to Hudson as the agency payroll firms are spreading their wings and pushing their schemes toward contractors. We have lost clients to these schemes as they are sold as ‘money making schemes’ as opposed to Hudson who expects the clients to pay for the services that they need.”

 

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