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How much do you know about the Criminal Finances Act?

The Criminal Finances Act (CFA) came into effect in 2017. This far-reaching legislation deals with recovering the proceeds of crime, tackling money laundering, combating the financing of terrorism and preventing tax evasion.


As a recruiter, you may wonder where you fit into all this and why you should concern yourself with it, but the reality is that within the legislation is a new crime – Corporate Criminal Offence – also known as failure to prevent tax avoidance.

Here, in our follow up to part one of this two-part blog series, we look at what it means and the repercussions it can have on both your business and your personal professional reputation.


Ignorance is no excuse

The CFA makes recruitment companies criminally liable for failing to prevent tax evasion. The stark reality is that recruiters who are found guilty of tax avoidance crimes under the CFA face a potentially unlimited fine, as well as a criminal record, and lasting and permanent damage to both their reputation and livelihood.


Even referring a contractor to an umbrella company can have corporate criminal consequences if that umbrella turns out to be operating a tax avoidance scheme. It’s especially difficult when these non-compliant companies appear to be legitimate on the surface, and go out of their way to dupe both recruiters and contractors in order to make money from them.


How, then, are recruiters meant to navigate the plethora of tax avoidance schemes that present themselves as disguised remuneration, loans, employee benefit trusts or marketing expenses, that seek to wrongly encourage contractors to ‘maximise’ their take home pay? And how can recruiters protect themselves from contractors who are determined to operate through such umbrellas, either deliberately or unwittingly?


Things are not always as they seem

The first rule of due diligence is to remember that things are not always as they seem.

When considering their Preferred Supplier Lists (PSLs), it is essential that recruitment firms factor in the CFA to avoid making themselves vulnerable to criminal liabilities through referring contractors to intermediaries who are intent on avoiding tax. Remember that it’s your responsibility to be aware of all your suppliers’ activities in this regard.


Therefore, clear and thorough management of the supply chain is vital. This includes training your recruitment consultants to ensure that they fully understand their actions in the context of the CFA. Your PSL should already be heavily-vetted to ensure that you only include compliant umbrellas, and your consultants should avoid going ‘off-piste’ and referring contractors to umbrellas that are not approved.


Incentives should also be carefully examined, and you should have policies and procedures in place to deal with the practice of consultants being offered incentives to refer contractors to specific umbrellas, especially if cash is involved. This can pose a risk if not declared as income, with the inference that it might be seen as tax avoidance, or even worse, tax evasion, and it’s something that no recruitment agency can be seen to condone. If your business is accused of such practices, your only defence against prosecution would be to demonstrate that you have adequate prevention procedures in place, and that these procedures were knowingly and deliberately flouted by the person in question.


Despite the CFA adding yet another layer of bureaucracy to a recruitment business’ already onerous burden, its intentions are good at heart. Its aims, to eliminate dubious and unethical practices, are designed to ensure fair treatment for everyone within the umbrella industry.

However, five years after its introduction, Professional Passport is still seeing evidence of dubious and non-compliant schemes thriving, and HMRC’s focus still appears to be on the victims rather than the perpetrators, despite it having the information and intelligence to shut them down and recoup lost revenue from the fraudsters.


Get in touch with Professional Passport

In order to continue to comply with the CFA, when you’re reviewing your PSLs, make sure that you only deal with Approved Providers. Don’t forget that if you have any concerns or questions regarding any umbrella company, you can contact us here or you can report a concern here.

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