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HMRC internal manual

Labour Provider Guidance

Yield and Measures: examples of Labour Market yield claims

Examples of range of yield claims for LM Interventions

Pre-registration visit - example 1
Pre-registration visit - example 2
Due diligence - example 1
Due diligence - example 2
Educational visit - example 1
Educational/due diligence visit - example 2
Compliance visit - example 1
Compliance visit - example 2
Compliance visit - example 3

Pre-registration visit - example 1

A visit is undertaken to a business applying for a VAT registration. The officer finds that the business has already issued £200,000 worth of sales invoices to a contractor covering the period from the date the business wants to register for VAT from to the date of the visit. The officer also sees that the business has made purchases resulting in claimable input tax of £2,000. The officer registers the business for VAT but the business fails to submit its first return - which covers the same period of trading as above. A central assessment (CA) has been issued for £3,000.

What results can be claimed by the LM team?

  • Cash collected in respect of the Additional Assessment of £35,000. (Output Tax = £200,000 at 20% = £40,000 less input tax £2,000 less CA £3,000) if there is a reasonable expectation that the amount will be paid (see LPOG10200). {#}
  • FRB in respect of Indirect Tax for up to 2 years if the next VAT return and full payment is received by its due date.
  • Any debt pursuit collected yield that has not already been claimed.
  • Potential FRB in respect of Direct Tax if the intervention results in the unprompted payment of Direct Tax post our action, and where it can be shown this is a change in previous behaviour.

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Pre-registration visit - example 2

Following a pre-registration visit to a new labour provider, the business fails to produce the required additional information/documentation required to support its application. As a result, after sending out reminders and a warning letter, the application is refused.

What results can be claimed by the LM team?

  • One-off Loss Prevented yield (RLP) of £89,000 (Refused Registration).
  • Any collected yield for debt pursuit activities that has not already been claimed.

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Due diligence - example 1

Following the issue of a Due Diligence leaflet to an end user one of whose labour providers’ are non-compliant (both VAT + PAYE), the end user verifies the VAT Registration of a new sub-contractor who is compliant. After checking with the end user the LM officer finds that they have stopped using the non-compliant labour provider.

What results can be claimed by the LM team?

  • FRB in respect of Direct and Indirect tax can be claimed in respect of the new-subcontractor for up to 2 years
  • Potential de-registration and veto of original labour provider that they are no longer used by the end user. (A one-off Loss Prevented claim (RLP) of £89,000)
  • Or potential FRB in respect of Direct and Indirect Tax in relation to other end users using the same labour provider should they stop using them.

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Due diligence - example 2

Following receipt of a veto letter, an end user’s VAT liability increases on his next VAT return as a result of reduced input tax. After checking with the end user, you find that they have stopped using sub-contractors and taken the workers on themselves.

What results can be claimed by the LM team?

  • FRB in respect of Direct and Indirect Tax can be claimed for up to 2 years.
  • Potential one-off Loss Prevented yield (RLP) of £89,000 in respect of each de-registration and veto of original labour providers that are no longer used by the end user (depending on whether they cease to trade, and whether the LM Officer refers the case for de-registration action)

Or

  • Potential FRB in respect of Direct and Indirect Tax in relation to other end users using the same labour provider should they stop using them.

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Educational visit - example 1

Following a visit to an end user using non-compliant sub-contractors (both VAT + PAYE), they decide to stop using sub-contractors and take the workers onto their own PAYE scheme.

What results can be claimed by the LM team?

  • FRB in respect of Direct and Indirect Tax can be claimed for up to 2 years.

Or

  • Potential FRB in respect of Direct and Indirect Tax in relation to other end users using the same labour provider should they stop using them.

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Educational/due diligence visit - example 2

The team approach a factory packing books for a publisher. The factory employs half of the workers directly, and subcontracts the work to several agencies for the remaining half of the workforce. The team explains to the HR and Finance directors that as directors they have responsibilities to both the workers and to HMRC and need to understand whether the agencies working within their supply chain are compliant. The LM team work with the directors, educating them to interpret their own records, and to make appropriate checks of their agencies. The directors discover that two of the four agencies are using subcontractors of their own, and these subcontractors are not registered for VAT or PAYE.

As a result, the factory directors decide to dispense with the services of these two agencies, they take another 100 workers directly onto their own payroll and seek the services of a new compliant agency to provide the remaining workers.

The intervention with this factory produces additional VAT via the removal of the non-compliant agencies, as the company has reduced input tax claims and the compliant agency renders accurate VAT returns, with additional PAYE/NICS verified through RTI each month.

What results can be claimed by the LM team?

  • FRB in respect of Direct Tax can be claimed in respect of both the end user’s payroll increase (taking on workers) and the new compliant agency’s increase in PAYE/NICs for up to 2 years.
  • FRB in respect of Indirect Tax can also be claimed for up to 2 years as a result of the decrease in end user input tax + increase in new labour providers VAT yield.
  • Potential Revenue Loss Prevention yield (RLP) if the original non-compliant labour providers are deregistered/vetoed.
  • Potential FRB in respect of Direct and Indirect Tax in respect of other end users who used to use the non-compliant labour providers and have replaced them with compliant ones or taken the staff on themselves.

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Compliance visit - example 1

Following a joint visit/review on a non-compliant business (for both VAT and PAYE), the business changes its behaviour and becomes compliant and renders future VAT and PAYE returns and payments on time.

What results can be claimed by the LM team?

FRB in respect of both Direct and Indirect Tax can be claimed for up to 2 years.

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Compliance visit - example 2

A visit is carried out to a non-compliant labour provider (for VAT only) who is registered for PAYE and VAT. Following the visit, the trader files its next two VAT returns - showing net tax due of £20,000 - but doesn’t pay the tax due on them. However, they do make the PAYE payments due in these two months.

The LM team chase up payment and after 2 weeks receives payment in respect of the two VAT returns.

What results can be claimed by the LM team?

  • Cash collected = £20,000

However, if at the time of the visit, the PAYE was also unpaid and as a result of the intervention PAYE payments are made, FRB for Direct Tax could also be claimed for up to 2 years.

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Compliance visit - example 3

Following a visit to a construction company, using sub-contractors, it is found that the sub-contractors being used are “missing” traders or the VAT numbers being used are suspected of being hi-jacked. Trader has been asked to supply additional evidence to support the supplies being made.

VAT returns received after the original visit show a lower amount of input tax being reclaimed.

What results can be claimed by the LM team?

  • FRB for Indirect Tax can be claimed for up to 2 years as the construction company has stopped using sub-contractors.
  • FRB for Direct Tax can be claimed for up to 2 years if the company took the workers on to its payroll and there is an increase in yield.
  • It is possible that there could be more than one claim if some workers go on to the company’s payroll and another compliant labour provider begins to supply other workers.
  • Potentially there could be a one-off claim for Loss Prevention yield (RLP) if the missing/hi-jacked labour provider is de-registered/vetoed.

Or

  • Potentially an FRB claim in respect of Direct and Indirect Tax in relation to other end users ceasing to use the same non-compliant labour provider.

Compliance visit - Removal of Gross Payment Status

Following a visit to a construction company who is registered on CIS as a Gross Payment sub-contractor, it is found that there is evidence of knowing non-compliance, or false application of the scheme.

Following submission and agreement with the CIS Technical team Gross Payment Status is withdrawn/removed (see LPOG5055). 

What results can be claimed by the LM team?

The calculation should be based on the traders record of payments received up to the date GPS was withdrawn. CIS deductions for registered subcontractors are calculated at 20%. Unless there is evidence that the business would have ceased earlier, for example where it known that all contracts would have been completed at an earlier date, calculate the RLP for 2 years.

Example:

Subcontractor starts trading with GPS 6 April 2009

Total CIS payments to 5 April 2010 £100,000

Total CIS payments to 5 April 2011 £120,000

GPS withdrawn 6 April 2011

Trades ceases 30 April 2011

RLP 20% x £220,000 = £44,000