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HMRC internal manual

Labour Provider Guidance

Yield and Measures: examples of yield claims

Examples of range of yield claims for LP Interventions

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 £200k 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 have made purchases resulting in claimable input tax of £2K. 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 has been issued for £3K.

What results can be claimed by the LP team?

  • Cash collected in respect of the Additional Assessment of £35k. (Output Tax = £200k at 20percent = £40k less input tax £2k less central asst £3k) if there is a reasonable expectation that the amount will be paid.
  • 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 DMB collected yield that has not already been claimed.
  • Potentially 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.

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 LP team?

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

Due diligence - example 1

Following the issue of a Due Diligence leaflet to an End User one of whose LPs 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 LP officer finds that the End User has stopped using the non-compliant LP.

What results can be claimed by the LP 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 LP that is no longer used by the End User. (A one-off Loss Prevented claim of £89,000)
  • Or Potential FRB in respect of Direct and Indirect tax in relation to other End Users using the same LP should the other End Users stop using them.

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 LP team?

  • FRB in respect of Direct and Indirect tax can be claimed for up to 2 years.
  • Potential one-off Loss prevented yield (£89,000) in respect of each De-registration and veto of original LPs that are no longer used by the End User (depending on whether they cease to trade, and whether the LP 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 LP should they stop using them.

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 LP 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 LP should they stop using them.

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 LP team work with the directors, educating them to interpret their own records, and to make appropriate checks of their agencies. The directors discover that 2 of the 4 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 2 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 the BROCS system each month.

What results can be claimed by the LP 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 LP VAT Yield.
  • Potential Revenue Loss Prevention yield if the original non compliant LPs 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 LPs and have replaced them with compliant ones or taken the staff on themselves.

Missing returns visit

A Trader has failed to file VAT returns for the periods 06/10 and 09/10. Central Assessments have been issued for these periods for £12,000 and £12,500 respectively. As a result of this action the trader then files the two missing returns declaring the net tax due for the periods was £15,000 and £16,000 respectively.

What results can be claimed by the LP team?

  • Cash collected (net additional liability for both returns) = £6,500
  • 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.

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 LP team?

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

Compliance visit - example 2

Following a visit carried out to non-compliant LP (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 £20k - but doesn’t pay the tax due on them. However, they do make the PAYE payments due in these two months.

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

What results can be claimed by the LP team?

  • Cash collected = £20k
  • FRB in respect of Indirect tax can be claimed for up to 2 years if the next VAT return and full payment is received by its due date.
  • No FRB in respect of Direct tax can be claimed as there hasn’t been a change in behaviour.

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.

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 LP 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 LP begins to supply other workers.
  • Potentially there could be a one-off claim for Loss Prevention if the missing/hi-jacked LP 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 LP