Sunday, June 16 2024

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NEWS

Danger of Gross Payment Model

Industry experts are firing a warning to clients and recruiters about a new ‘Gross Payment Model’ emerging in the sector, which is a tax avoidance loophole, masquerading as a credible payment method, when it is essentially a scam, and possibly even fraudulent.

The ‘model’ operates when monies are paid by a client or agency to an umbrella company, in good faith that they will be processed as employment. But, instead, the umbrella pays the contractor’s limited company directly. When that happens, the off-payroll legislation comes into play, but because the worker was never given a valid Status Determination Statement (SDS) by the client, the client becomes liable for the tax.

The scheme also leverages the naivety of clients and agencies who loosely use the phrase “Inside IR35” when describing a role, when what is really meant is that the engagement is “payroll-only”. If the umbrella records that the role was declared “Inside IR35”, then this reinforces their argument that they are required, by statute, to pay the monies with tax deductions.

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“Anyone hearing the phrase ‘Gross Payment Model’ uttered by an umbrella should take extreme care, otherwise firms and agencies could face crippling tax bills along with being embroiled in criminal investigations for fraud,” says Dave Chaplin, CEO of IR35 compliance firm IR35 Shield. “Agencies and clients either need to process and pay the taxes themselves or ask umbrellas for proof that all payments are being made correctly and processed as employment income.

“The model seeks to leverage a loophole in the current legislation, and the authorities are aware of it,” he adds. “The legislative bonnet is shortly being lifted to fix the offsets issue, and I am proposing to HMRC that it would be prudent to close off this avenue promptly.

“The ‘Gross payment model’ is essentially a scam. Nothing else. Don’t go near it. And make sure you can detect it when it enters the supply chain.”

Crawford Temple, CEO of Professional Passport also says: “An umbrella should never be offering a ‘Gross Payment Model’ – an umbrella employs its worker directly and not through a contractor’s limited company.

“Only those provided with an ‘Outside IR35’ SDS determination provided by the client would be using this arrangement. Where the umbrella provider is making the determination, this raises significant risks and potential liabilities that HMRC is then able to pass up the supply chain.

“We consider such arrangements unethical and my message to recruiters and clients is to stay well clear of such offerings.”

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Newsdesk
Newsdesk
The Global Recruiter Newsdesk bringing you balanced journalism, accuracy, news and features for all involved in the business of recruitment from around the world

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