What JSL will mean for you: Five lessons from our expert panel

Earlier this month Kingsbridge brought together a panel of industry experts to discuss the implications of the government’s new JSL (Joint and Several Liability) legislation.

The event was well timed – the new rules come into effect on 6 April and there’s still plenty of confusion about what they will mean in practice for recruitment agencies.

In a nutshell, JSL makes recruitment agencies jointly and severally liable for unpaid tax in the labour supply chain. If an umbrella business fails to pay what it owes, you – as the agency – could be on the hook.

Most recruitment businesses know that much already. However, many remain in the dark on the practical implications of new JSL rules and what they mean for day-to-day operations – that’s precisely what our event was all about.

The wide-ranging discussion helped to lift some of the fog. Topics included:

• How JSL introduces new financial and compliance exposure for agencies and clients
• The stark reality of recruiters’ statutory defence to the new legislation (spoiler: there isn’t one)
• The growing risks of poorly defined worker engagement models
• Why complete mitigation is difficult – but there’s lots that recruiters can do anyway.

Chaired by Kingsbridge Managing Director Andrew Robinson, the panel was made up of bona fide industry experts:

• Gavin Tagg, Fractional General Counsel
• Kareena Prescott, Founder of C2E Law
• Andy Chamberlain, Head of Strategy, Policy and Advocacy at the FCSA
• Shazia Imtiaz, General Counsel at APSCo
• Ryan Dawson, IR35 Project Manager at Kingsbridge

Here are five key takeaways from the discussion…

1. Putting your head in the sand isn’t a viable strategy

There’s no doubt that JSL adds cost and complexity for recruiters, but you can’t afford to ignore it.

HMRC will be keen to show that the legislation is making a difference and helping to rid the recruitment industry of non-compliant businesses, especially in the umbrella sector. At the same time, it’s by no means clear how the rules will pan out in practice.

With so much confusion around the legislation, fallout can be expected. The sense among members of our panel is that there are agencies out there who have largely ignored the April deadline up to now, or who don’t appreciate the risks associated with sharing a supply chain with non-compliant providers.

Ignorance is no defence. In fact, as we’ll explain later, there’s no statutory defence at all.

Recruitment businesses should clue themselves up and prepare for additional costs. Ideally, that only means the cost of extending due diligence processes and playing your part in a transparent supply chain.

But worst-case scenario, it could mean the much more significant costs associated with defending your business during JSL investigations or having to meet the PAYE obligations of a non-compliant and now-defunct umbrella company.

However you look at it, JSL is not something any recruitment business can afford to ignore.

2. When they say there’s no statutory defence, they mean it

You can do all the checks you want, and have all the documentation you think you need, and still be liable for unpaid PAYE in your supply chain.

The feeling on our panel was that HMRC will quickly default to the new JSL rules whenever they can because – as Ryan Dawson put it – “HMRC will choose the path of least resistance, and that’s JSL.”

To repeat, there’s no statutory defence with JSL. Where PAYE is unpaid, HMRC can – and will – recover liabilities from the party holding the contract with the client.

Investigators don’t have to prove that your processes were negligent or that fault lies with your business. They only have to show that tax or National Insurance (NI) is missing. It doesn’t matter where it’s missing from.

However, that doesn’t mean due diligence on your supply chain is any less important – in fact, it makes it more so. It’s just that due diligence can no longer be a tick box exercise to keep HMRC off your back – instead, it has to be thorough enough to help ensure there are no PAYE problems in the first place.

As Shazia Imtiaz said, you have to be aware of the limitations of even the most painstaking due diligence: “Remember that due diligence is only as good as the information you’re given and only good for that moment in time. If the next day an umbrella company doesn’t make a payment your risk is there again.”

3. Vague worker engagements make things a whole lot worse

As we know, PAYE is applied when a worker is employed. If they’re self-employed then they handle their own tax and NI obligations, at least in theory but in complex labour supply chains, the waters can be very muddy.

A recruitment company may be placing workers with clients who are employed by an umbrella, self-employed as sole traders, employed through their own Personal Service Company (PSC), or part of a Construction Industry Scheme (CIS).

This is a world made up of shades of grey, supposedly governed by the supervision, direction and control (SDC) test. Put simply, if there’s even a hint of SDC in the relationship between the end client and the worker, self-employed status (in any of its myriad forms) doesn’t – or shouldn’t – apply.

But the fact is, it can be difficult to tell. Sometimes even workers are unsure of exactly what their employment status is. They might be offered some in-work benefits from an umbrella company, like insurance, while being paid as self-employed workers.

To add to the confusion, the new legislation introduces the concept of a “purported umbrella company”. This is complex but, in short, JSL will apply when an umbrella company purports to employ a worker, or other organisations in the chain assume it does, but in reality doesn’t.

In other words, self-employment has to be clear and unambiguous to apply; if it isn’t, your risks increase. JSL targets vagueness and inconsistency.

For recruitment businesses, these grey areas now a real and present danger. HMRC will pounce on instances where self-employed status may be debatable, and agencies will be on the hook for unpaid PAYE tax and NI.

4. You can mitigate some (but not all) of the risk

Could recruitment agencies do more for themselves? Taking payroll or tax payments in-house is sometimes suggested as a mitigation for many of the challenges of JSL.

While doing so might technically ‘work’, the commercial reality for many recruitment agencies is that they need good umbrella companies to do the heavy lifting in these areas. With clients increasingly squeezing margins, a shift to in-house payroll and HR would be uneconomical for many recruitment businesses.

So, what can agencies do? Start by conducting thorough due diligence and repeating it regularly. Whittle down preferred supplier lists to those umbrellas you trust implicitly. Make sure contracts are clear and unambiguous on who is and isn’t self-employed and treat self-employed workers as such. “Don’t cross contaminate these workers or it will lead to risk,” said Ryan.

As Gavin Tagg suggested, the extra scrutiny on umbrellas might encourage the wider take up of self-employed models like PSC or CIS. These are relatively straightforward to administer as long as everyone keeps SDC firmly in mind and could lead to a clearer supply chain overall with appropriate tax being paid and protections in place for all.

5. Get prepared and stay positive

The first year of most new legislation is often considered a soft landing, giving affected businesses time to adjust. Kareena believes that might not be the case this time, with HMRC keen to act in a way that will quickly encourage labour supply chains to police themselves.

From April, recruitment agencies could face the double whammy of increased regulatory scrutiny and a raft of rules that are largely untested in the real world. As Andy says, “the initial scope of legislation can widen in practice. Legislation sometimes gets used in ways that it wasn’t designed for.”

Still, Gavin Tagg thinks a positive outcome is possible. If supply chain participants talk to each other and innovate, new JSL-compliant solutions and processes may soon emerge. If everyone accepts the need for communication and transparency, the result could be a simpler, less opaque labour supply chain that works for everyone.

Getting support

Navigating legislation and ensuring compliance can be challenging for recruitment companies, end clients and contractors alike. The best thing you can do is speak to your supply chain, understand your risks and then you’re in a better place to navigate your responsibilities.

If you’re still unsure or are looking for an expert to talk to, we offer tailored support, including expert guidance on compliance strategies, and risk mitigation.

You can email [email protected] directly with your questions – they’ll be more than happy to help.