Jul 28, 2021

Criminal Finances Act 2017: Guide for Recruitment Agencies (2021)

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  • Criminal Finances Act 2017
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We know the Criminal Finances Act (CFA 2017) is not today's news and over the past 4 years, recruitment agencies should have taken action to minimise their risk of exposure especially when they are using umbrella companies. Unfortunately, most agencies we speak to are not aware of what this legislation entails and its risks for their organisation.

Due to this legislation affecting all temporary recruitment agencies working with umbrella companies, we have decided to provide this guide whilst also referring extensively to the online HMRC guidance.

It is important to specify that the Criminal Finances Act is a broad piece of legislation affecting organisations across industries. Consequently, we will only talk about it from a recruitment agency angle.

Let's get started!

Introduction to the Criminal Finances Act 2017?

In 2017, the Government introduced two new Criminal Corporate Offences also known as CCOs:

  • Failure for a recruitment agency to prevent the facilitation of UK tax evasion anywhere in the world
  • Failure of a recruitment agency to prevent the facilitation of non-UK tax evasion

As to why HMRC introduced this legislation, they give the tone in the first sentence of their guidance:

"The Government believes that relevant bodies [e.g. Here Recruitment Agencies] should be criminally liable where they fail to prevent those who act for, or on their behalf from criminally facilitating tax evasion." (HMRC Guidance, Page 3)

One important aspect of this legislation is that Senior Managers of a recruitment agency do not need to be aware or involved to be held accountable. This means not knowing is not a defence anymore, not doing anything is simply not an option.

What is the Criminal Finances Act 2017 and how can Recruitment Agencies be found guilty

For the Criminal Offence to appear, 3 stages apply:

Stage One
There must be criminal tax evasion by a taxpayer under existing law. We can take the example of one of the contractors of the recruitment agency using a malicious umbrella company to increase their take-home pay.

Stage Two
There is a facilitation of tax evasion by an "associated person" of the recruitment agency. HMRC in their guidance (page 7) give a very clear definition of what "associated person" means:

  • A "person" can be an individual or an incorporated body.
  • A person is "associated" with a recruitment agency if this person is "an employee, agency or any other person who perform services FOR or ON BEHALF of the recruitment agency.

For avoidance of doubt, HMRC clearly explains that the definition of a person who performs services for or on behalf of the organisation is "broad in scope to embrace every possibility".

Stage Three
The recruitment agency failed to prevent the tax evasion with "reasonable prevention procedures" to prevent its associated persons from committing tax evasion facilitation.

We cover below what would happen for the recruitment if these 3 stages are completed.

How could the Criminal Offence apply to a Recruitment Agency?

What do recruitment agencies risk under the Criminal Finances Act?

The penalties and sanctions described by HMRC can be very damaging for the recruitment agency:

  • Unlimited Financial Penalties:
    In the case recruitment agencies work with a malicious umbrella company, it is highly likely that the tax evasion will be for all candidates working through this umbrella company resulting in a huge financial loss.

  • Ancillary orders such as confiscation orders or serious crime prevention orders:
    If the recruitment agency is found guilty, the mere fact that it will be a criminal conviction will have consequences such as "being prevented from being awarded public contracts".

These consequences are no laughing matter and understanding how to protect your business is key.

How could recruitment agencies protect themselves?

For HMRC there is only one line of defence:

"Where the relevant body [e.g. recruitment agencies in this article] has put in place "reasonable prevention procedures" to prevent its associated persons from committing tax evasion facilitation offences, or where it is unreasonable to expect such procedures, it shall have a defence." (HMRC Guidance, Page 6)

Should an agency find itself at stage 1 it would be imperative to have procedures in place.

In their guidance (page 15), HMRC considers that prevention procedures put in place by the recruitment agency "should be informed by these 6 guiding principles".

As this is a guidance for all businesses across all industries, we have personalised it to provide Recruitment Agencies with practical and operational solutions:

  1. Risk Assessment:

Recruitment agencies must assess the nature and extent of their exposure to the risk of those who act in the capacity of an associated person. HMRC have specified this risk assessment should be documented and kept under review

  1. Proportionality of risk-based prevention procedures:

Recruitment agencies must adopt reasonable procedures to prevent tax evasion. The procedures must be proportionate to the risk the agency faces.
Below are practical processes that recruitment agencies can immediately put in place in the case they use the services of umbrella companies:

  • Create a Preferred Supplier List (PSL) of accredited umbrella companies (Professional Passport or FCSA).

Saferec Help: We developed a free process for recruitment agencies to create or renew their PSL of accredited umbrella companies within 7 days. (access now)

  • Monitoring Accreditation: should one of the umbrella companies lose its accreditation, especially if you base your defence based on Accreditations.

Saferec Help: We developed a free service that allows agencies to receive alerts within 24 hours if any of the umbrella companies in their PSL lose their accreditations. (access now)

  • Audit Regularly your Umbrella Companies: These audits are sometimes done internally through the finance or compliance department of the recruitment agency.

Saferec Help: Our team of experts can offer in-depth audits on each Umbrella Company that is on your PSL. (access now)

  • Be compliant and send Key Information Documents (KID): It should not be a guiding principle as it is already a legal requirement for recruitment agencies.

Saferec Help: we developed a solution that generates KIDs for all payroll solutions including any Umbrella Company. This means it will ensure you communicate accurate illustrations to your contractors. (access now)

How could Recruitment Agencies protect themselves?

  1. Top-level commitment:

The Senior Management of the recruitment agency should be able to show commitment to preventing tax evasion by any associated person. HMRC clearly states that the agency "should foster a culture in which activity intended to facilitate tax evasion is never acceptable".

  1. Due diligence:

Apply due diligence procedures regarding the associated person acting for or on behalf of the agency to mitigate risks. Again, it should be proportionate to the risk faced by the organisation.
It goes way beyond the due diligence "questionnaire" that recruitment agencies ask umbrella companies to complete. These questionnaires are a good first step, but should only be the first step!

  1. Communication:

The recruitment agency must ensure that all procedures and policies regarding the facilitation of tax evasion are properly communicated and understood. It also includes training.

  1. Monitoring and review:

These "reasonable" procedures should be consistently reviewed and updated/improved if it is necessary.


Ignoring this legislation or turning a blind eye on who your umbrella company suppliers are is simply not an option anymore. Recruitment agencies must create a process to prevent tax evasion and accordingly protect their business as well as their contractors.

There is no doubt that most umbrella companies comply with the law and are safe. The only question is; what have you done to ensure your umbrella company is one of the compliant ones? If the answer is "nothing" or "they just complete a questionnaire before we add them to the PSL", the wise advice is don't wait. With the Criminal Finances Act, today's anticipation is the key to your agency's future protection.