This pro tip is for businesses that hire contractors
Context
Under the off-payroll working rules (IR35), if HMRC cannot recover unpaid taxes from parties in the labour supply chain, the liability may fall on your organisation. Ensuring that your supply chain operates PAYE properly is a critical step in reducing this risk.
*Pro Tip* - Perform thorough due diligence on all parties in your labour supply chain.
Here's what you should be doing:
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Verify Worker Engagement Details:
- Confirm whether workers are operating through intermediaries (e.g., personal service companies) or are direct employees of an agency or umbrella company.
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Audit Agency and Intermediary Practices:
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Request and retain evidence from agencies or intermediaries demonstrating they’ve operated PAYE on workers’ payments. For example:
- Contracts clearly outlining the workers are employees.
- Proof that PAYE has been deducted and paid to HMRC.
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Keep Records of Due Diligence: Maintain a record of:
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All checks you’ve conducted.
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Any assurances or responses from agencies or intermediaries.
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Any actions taken if discrepancies or gaps were identified.
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Why this matters
Failing to conduct proper due diligence could leave your organisation exposed to financial liability for unpaid taxes if agencies fail to comply. By keeping detailed records of your supply chain checks, you not only demonstrate reasonable care but also provide a solid defence in case of HMRC compliance checks.
