Criminal Finances Act 2017: Impact on Recruitment Agencies


Fifteen months have passed since the Criminal Finances Act of 2017 (CFA 2017) was signed into law in an attempt by the UK government to curb tax evasion. The act which was announced in April 2017 and signed into law on 30th September 2017 can be likened to the Proceeds of Crime Act (POCA) 2002 which was based on money laundering and confiscation regime. The CFA 2017 focuses on recruitment agencies.

What does the offence entail?

The law is based on two corporate criminal offenses:

  • Failure of a company to prevent any act of evading the UK government tax;
  • Failure of the company to prevent any act of evading non-UK government tax.

The law states that partnerships or limited companies will be held liable if they fail to prevent any party within their supply chain from engaging in any activity that could make them avoid paying either the UK or non-UK tax.

The parties in question can be staff members, clients, suppliers or any person that does business with the organisation. The organisation is criminally liable even if the tax evasion was done without involving the management. Recruitment agencies are therefore required to put in place measures that would help them avoid such situations.

Instances when a recruiting agency is deemed guilty

The law only comes to action when there is sufficient evidence of a tax evasion offense by any party in the supply chain. Recently, we have experienced cases of contractors applying schemes that help them avoid tax entirely or reduce the amount of tax they should pay. HMRC has posted on its website all non-compliant schemes that they are targeting to help recruiters know who not to associate with and when to take action.

A Second scenario when the recruiter is deemed guilty is when the recruiter’s consultant or employee has a hand in the act of evading tax. If HMRC can prove that the employee knew that the scheme was tailored to avoid tax or when a scheme advertises a supernormal take-home pay. Any referral fee paid to the consultant may also serve as evidence of ill intention.
Thirdly, a recruiter is guilty if he has not put proper measures in place to prevent any tax evasion activities by its employees.

If a recruiter is found guilty, hefty fines are imposed on his agency. But the recruitment agencies can avoid the penalties by proving that they had taken the necessary steps to prevent any tax evasion acts, or show that it was unrealistic to expect procedures in place given the circumstances.

Reasonable Protective Measure for Recruiters as advised by the HMRC

  1. Read and understand the CFA 2017- it is upon the recruitment agency to have a good grasp of what the law entails. The recruiters can also get more information from HMRC on the non-compliant schemes that may lead to the tax evasion crime.
  2. Train the staff members – ensure that all the employees are aware of the new law and the pending punishment if found guilty.
  3. Retain any evidence of tax evasion measures taken- this should include evidence of conducting the staff training on the matter. The evidence might be helpful in proofing that you are complying with the law.
  4. Ensure that management is committed to enforcing the requirement of the law- If you have read keenly the CFA 2017, it is clear that the UK government wants the management of recruitment agencies to step in the fight against tax evasion and there is no better person than the administration to do this.

This seems to be much of a collective punishment, where the ‘parent’ pays for the mistake of the ‘child’, and the only way of avoiding the punishment is by producing your employee(s) to the authorities or ensuring they are well behaved.

Written by: darlia