Temporary labour

HMRC expects businesses and organisations that use temporary labour to know who is supplying their labour, and how.

In an ever-changing world and with reported labour shortages worldwide, businesses and organisations often rely on temporary labour to fill a resourcing or skills gap. These businesses and organisations are known as the end-client.

If the end-client does not take reasonable steps to ensure their supply of labour is legitimate, it could be exposed to financial, legal and reputational risks. The end-client could also be liable for another person’s unpaid taxes and National Insurance Contributions (NICs) further down the labour supply chain.

From an income tax and NIC perspective, the main sources of temporary labour that end-clients usually engage with, include.

• Sole traders / self-employed – this is a direct engagement between the end-client and individual worker. 
• Personal Service Company (PSC) or other intermediary – usually, there is a contract between the end-client and an intermediary for the worker of the intermediary to provide their services to the end-client.
• Umbrella company – there is an arrangement between the end-client and the umbrella company, for the umbrella company to provide the services of an individual to the end client. The individual is an employee of the umbrella company.
• Agency worker – there is an arrangement between the end-client and the agency to provide the services of an individual to the end-client. The agency is responsible for operating PAYE on payments it makes to the individual.

What should end-clients do?

HMRC expects end-clients to know the category of worker they are engaging with and take reasonable steps to ensure that everyone in the supply chain is complying with their tax and NIC obligations.  

Therefore, end-clients should perform due-diligence checks to make an informed judgement about the integrity of their labour supply chain.
Whilst HMRC does not provide a definitive checklist of what due-diligence steps should include, they suggest adopting a “Check, Act, Review” principle to minimise risk.

How can Crowe help?

At Crowe, our employment tax specialists have helped many clients to understand and minimise their tax, NIC and reputational risks by:

• identifying the category of labour they engage with
• providing advice as to which parts of the tax legislation apply
• performing employment status determinations
• ensuring they have reasonable processes in place to manage their labour supply chain risks.

If you have any concerns with regard to your obligations or compliance with labour supply chains, please contact Glen Huxter or your usual Crowe contact.