Draft legislation contained in the Finance Bill will damage the recruitment sector and business, says the Association of Recruitment Consultancies.
Not only will hirers using recruitment agencies that supply employed temps become liable for the employment tax debt of the agency, which could run from £thousands to £millions, but workers could lose their employment rights.
ARC chair, Adrian Marlowe, said “By making hiring clients liable for the tax debt of the agency, it is logical that hirers will think twice before using an employer agency to supply temp staff. One outcome could be the switch by hirers from using smaller agile agencies to larger organisations that have the potential to offer greater tax security. This would skew the market unfairly in favour of larger agencies. Another could be the refusal by hirers to require the agency to cease employing its temp workers. This would result in loss of employment rights by the workers the legislation seeks to protect. Or there could be a switch away from using agencies altogether, whether employer or PAYE only, because of a perception that risk may arise, where the simple act by an agency of employing a temp could make a hirer instantly liable for the tax.”
The concept is designed to combat tax avoidance by umbrella companies that employ workers supplied through agencies or used by hirers. The legislation is proposed to be effective in April 2026. However, it imposes no new obligations at all on the target sector, umbrella companies.
“This is exactly the wrong time to be doing this. With the market already depressed due to rising employer costs, and plenty for employers to worry about due to the state of the economy and more employment legislation on the horizon, employers need maximum flexibility. The draft legislation imposes risk and cost into the supply chain, when the use of temp workers is typically the first step that employers can take to gear up their workforce and services.
“This legislation just doesn’t work on so many levels; one company having to pay the tax debt of another; forcing payment of PAYE and NICs twice; lack of process; downward pressure on employment; favouring larger businesses, and more. Whichever way you look at it there are no positives at all. If brought into legislation it will act as a brake on employment and be bad for business overall let alone the recruitment and worker supply industry.”
Marlowe concluded “Fortunately, the draft is still in consultation and we urge the Treasury to rethink as we have recently discussed. ARC supports the aim to reduce tax avoidance, but legislation of this kind wouldn’t be necessary at all if there was a mini FCA type registration scheme for umbrella companies. ARC pressed for such a scheme in the last consultation, and we ask again that, instead of rejecting it out of hand without explanation, reconsider setting a scheme up and let agencies and employers get on with what they do best.”
Call us on 01273 236 236, email info@arc-org.net for more information. or contact our legal team info@lawspeed.com to talk about what these changes could mean for you.
