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3 Key Labour Compliance Checks to Avoid HMRC Penalties

16 November 2017

Within the last decade, the UK has seen a major crackdown on labour compliance, illegal working practices and fraud in labour supply chains. Specifically, modern slavery has been a significant issue for workers in almost every business industry, with the Home Office predicting there may be as many as 13,000 victims of modern slavery in the UK.

These underlying issues have been continuously addressed by the UK government and HMRC, with new legislations (the Modern Slavery Act 2015) and regular updates of existing legislations (IR35, National Minimum and National Living Wages) being implemented to tackle these issues. As a result, UK businesses regardless of their size, are being urged by HMRC to undertake checks to ensure complete compliance, stop modern slavery and create a level playing field for all businesses.


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For organisations that use labour supplied by a third party, these checks should cover the entire labour supply chain, including agency and umbrella workers, to ensure complete transparency.

Undertaking checks and what to check:

HMRC continues to find non-compliance, illegal working practices and fraud in labour supply chains across business sectors.

They are committed to tackling non-compliance, fraud and illegal working practices so that they can fund essential UK services, stop modern slavery, and create equal opportunities for all of those businesses complying.

HMRC suggest that you should protect your business by undertaking checks to understand:


1: Where your workers are coming from?

2: How are they being paid?

3: The legitimacy of those arrangements.


HMRC propose undertaking checks within 4 key areas to ensure:

1.  Your supplier of labour is legitimate and has no history of non-compliance

2.  You understand and approve the labour supply chain

3.  Agency workers are paid their contractual rate and it complies with the National Living Wage (NLW)/National Minimum Wage (NMW)
4.  You’re doing all you can to eradicate modern slavery and illegal working in your supply chains



If HMRC finds non-compliance or fraud in your supply chain

It’s likely to cost you more. If it can be shown that you knew or should’ve known that transactions you entered in to were connected with fraudulent evasion of VAT, you’ll lose the right to recover the tax paid on these transactions.
Failure to carry out appropriate checks will be one of the factors that HMRC will take into account in considering whether you knew or should’ve known of the VAT fraud.

You may be liable for unpaid taxes and National Insurance contributions (NICs)

HMRC may ask you to account for unpaid tax and NICs. For example, if an offshore agency supplies you with workers and they don’t account for tax and NICs payable through the PAYE system, then you may be responsible.

Your risk of reputational damage

Customers, shareholders and the media expect transparent tax planning and value low risk behaviour towards tax contributions. If you take part in non-compliant supply chains whether directly or by association, your commercial relationships may be compromised, affecting your ability to maintain contracts.

NLW/NMW and falsified payment records
It’s a criminal offence if HMRC finds that an employer hasn’t been paying workers the correct rate or falsifying payment records. Arrears have to be paid back immediately. There’ll also be a penalty of up to 200% and offenders may be named and shamed in the press by the government.


Download your full guide on HMRC labour compliance 

Datum RPO has produced a full guide that  include information on how best to implement labour checks, what areas to check and the penalties for non-compliance.

Datum RPO also offer a FREE AUDIT for those that download the guide. 

 The following guide includes: 

  • Undertaking checks and what to check 
  • 4 key areas of focus
  • How Datum RPO comply with these requirements
  • A free supplier audit


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Download Guide


About Datum RPO

Datum RPO are experts in recruitment process outsourcing and handle the entire recruitment process for some of the UK’s biggest companies.

As experts in procuring and managing temporary and contract agency labour, we provide a complete RPO service that helps our customers become more efficient, whilst delivering savings of up to 12% on existing spend.

Find out more about the Datum RPO difference at www.datumrpo.com


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