Category: Umbrella Company Compliance

Government consults on regulation of umbrella companies.

The Government is now consulting based on recommendations in the Good Work Plan to establsh a new single enforcement body for employment rights. This consultation will also look at the possibility of one single enforcement body that will inevitably look at the regulation of umbrella companies.

The consultation will consider the creation of a new single enforcement body responsible for enforcing employment rights which will include the regulation of umbrella companies. This type of arrangement has worked in other countries and the Government will now look to see if similar measures can be applied in the UK.

The proposal is that the new body would combine the responsibilities that currently sit under the Director of Labour Market Enforcement’s remit. This includes the enforcement of national minimum wage currently carried out by the HMRC, domestic regulations relating to employment agencies, licenses to supply temporary labour in high risk sectors, and labour exploitation and modern slavery related to worker exploitation.

The consultation also suggests that the department will have new responsibilities in relation to umbrella companies and holiday pay for vulnerable workers.

The government aims to deliver on the following:
Extended enforcement particularly in the areas of umbrella companies and holiday pay, which are not currently enforced;
A strong, recognisable brand making it easier for individuals to know where to go for help;
Better support for businesses through development of guidance;
Coordinated and consistent enforcement action;
Greater sharing of intelligence, and;
Closer working with other enforcement partners.

The Government are asking for feedback on the consultation with views being sought on whether the new body should include responsibilities in relation to statutory sick pay breaches, the Equality and Human Rights Commission in relation to discrimination and harassment and BEIS in relation to the enforcement of employment tribunal awards.

The consultation closes on 6 October 2019.

Group defines how a compliant umbrella company should operate.

An industry organisation has produced a manual which describes what constitutes a ‘compliant’ umbrella company. Its founder says that bad practice within the industry still exists, and hopes the manual will help to create a level playing field for all providers, and reassurance for umbrella employees.

All Umbrella Companies Are Equal (AUCAE) has spent much of the past year developing the manual – incorporating comments and guidance from HMRC, which will be provided to the group’s 36 member companies. There has been an ongoing debate between staffing industry professionals for many years over the definition of a a compliant umbrella scheme, and it may surprise many to find out that there is no single piece of ‘official’ guidance on the matter.

We asked Lisa Keeble, co-founder and MD of the group, why this was the case…

Read the full article at http://www.contracteye.co.uk/compliant-umbrella-manual.shtml

AUCAE to update the Straight Talking Company Charter

AUCAE have recently been engaging with a number of recruitment agencies who are concerned about ‘incentives’ that are being paid, by umbrella companies, directly to consultants without the knowledge or approval of the recruiters’ Directors. Such practices leave both the recruiter and the consultants at risk (under the Bribery Act and Income Tax legislation) so it comes as no surprise that many recruiters are concerned about dealing with umbrella companies that use such underhand techniques to try and gain business.

The Association of Professional Staffing Companies (APSCo) has strict guidelines surrounding ‘incentives’ or ‘referral fees’ that are offered to its members by affiliate members (umbrella companies). AUCAE members feel that recruitment agencies should have confidence in the umbrella companies that they work with and certainty that their business relationship will be one based on transparency and trust. Therefore, their comprehensive Straight Talking Umbrella Company Charter has been amended to reflect the current best practice demanded by industry leaders.

From now on all member companies will work to the following:
No member will offer rewards or incentives to individual recruitment consultants without the express written permission of a Director of the recruitment business.
No member will offer rewards or incentives to recruitment consultants unless they fulfil the criteria to qualify under an approved HMRC scheme to cover such rewards and should therefore not take the form of cash.
No member will offer rewards or incentives to recruitment consultants unless they are made under an approved HMRC “Taxed Award” scheme, with all relevant taxes and NI fully accounted for to HMRC.
No member will enter into a commercial arrangement with a recruitment business, which they know will threaten the financial stability of their organisation.

Therefore, proposed timesheet rebates (or similar continuing arrangements) should be evaluated in terms of percentage of profit and not gross turnover and must be proportionate to the value of the service provided. Any agreements for timesheet rebates (or similar commercial arrangements) must be entered into under a contract, to be signed by all parties, in which all terms are transparent.

AUCAE work with The Low Incomes Tax Reform Group

The Low Incomes Tax Reform Group, formed in 1998, has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes. LITRG works extensively with HM Revenue & Customs (HMRC), other Government departments, commenting on proposals and putting forward their own ideas for improving the system. Their most recent publication is a research report into the use of particular umbrella arrangements, by low-paid agency workers, which have been declared ‘non-compliant’ by HMRC but are still widely in use. http://www.litrg.org.uk/reports/2014/141117-LITRG-PAYE-report.

Lisa Keeble, co-founder of All Umbrella Companies Are Equal (AUCAE) has been in discussion with Meredith McCammond, who compiled the report, and was pleased to be able to offer help and advice on umbrella company processes and procedures. Keeble commented: “This report into the umbrella industry is one of the most well-balanced that I have ever seen. The authors recognise that many of the problems within the sector have arisen from a ‘seeming reluctance by HMRC to engage with responsible umbrella companies in reaching consensus on a compliant model’.

Establishing a blue print for a compliant umbrella model is one of the reasons that AUCAE was set up so I was delighted to work with Meredith on this report and look forward to continuing the relationship to ensure that our joint aims are achieved” Much of the LITRG report focuses on the ‘Pay Day By Pay Day’ model which has been used extensively by workers earning minimum wage or just slightly above. A proportion of the workers earnings will be ‘sacrificed’ to be processed as expenses, thereby offering tax relief which will then reduce their tax burden. However, as the umbrella company will retain a margin from the contract value and is legally obliged to pay Employer’s NIC to HMRC the workers’ earnings will invariably be pushed below the minimum wage threshold and their tax and NI contributions will be negligible or even zero.

This model has been challenged by HMRC and workers have subsequently received demands for underpaid taxes. LITRG feel that HMRC should cease this practice and should, instead, issue Regulation 80 demands against the scheme providers. Keeble feels that a policy of targeting providers of non-compliant schemes and those that recommend them rather than those that use them, who may often be completely uneducated about tax matters or may not even have English as their first language, is likely to be far more effective in reducing abuse.

AUCAE to meet with the OTS to review the issues surrounding employment status.

Leading trade body All Umbrella Companies Are Equal (AUCAE) have been invited to assist the Treasury with their review of the issues surrounding employment status and will shortly be meeting with the Office of Tax Simplification (OTS) for initial discussions. The OTS wish to consider whether the UK’s current employment status tests produce meaningful results and determine if there are any discrepancies between industry sectors/job types. They will also be examining how well the existing rules and guidelines work in situations where individuals have multiple roles.

As a representative of over 30% of UK umbrella company providers supplying services to the freelance market, AUCAE are well positioned to contribute valuable input to the debate. Wesley Scott of Liberty Bishop and member of AUCAE stated; “an area of particular interest to the group is the issue of the UK’s changing working patterns in recent years and how the growth of contracting impacts upon employment status processes.”

AUCAE are looking forward to providing feedback on the practicalities and routes through which individuals and businesses can engage with HMRC in order to obtain advice and guidance. Scott continues; “Our participation in this review follows previous involvement in government consultation processes (most recently the Offshore and Onshore Employment intermediaries “round-table” discussions) and forms part of our ongoing commitment to compliance and transparency within the tax system.”

All Umbrella Companies Are Equal work with HMRC to produce Umbrella Company Compliance Manual

The industry group, All Umbrella Companies Are Equal, has spent the last year working closely with HMRC to produce a manual for its umbrella company members, detailing what constitutes a “compliant’ umbrella company.

The comments and guidance provided by HMRC on the manual give a definitive standard that will be adopted by all its members and those wishing to gain membership to the self-regulatory group. The group, which now has 36 approved members and 11 pending applications, represents well over 30% of all UK umbrella companies and is fast becoming the go-to place for both contractors and recruiters looking to gain valuable advice about the industry.

Lisa Keeble; one of the founder members commented; “Over the past few years there have been many debates between industry professionals as to what would constitute a “compliant” umbrella; this manual will now confirm just that! It will undoubtedly allow us to provide clearer guidance to all those involved in the contracting market and give confirmation for those intending to work to HMRC guidelines.”

Amongst the guidance, HMRC have confirmed what requirements are necessary in order for a contract of employment to be “truly” over-arching, covering topics such as; Mutuality of Obligation with the provision for a minimum of 336 hours, pay between assignments and Statutory Employment rights. There is also confirmation that any UK PAYE umbrella company should no longer be operating, what is commonly referred to as, “Rolled Up Holiday Pay” and that all umbrella’s should be allowing for the provision of pay when holiday is taken. The All Umbrella Companies Are Equal group would like to thank HMRC for their ongoing support and assistance in helping to create a level playing field.

This article has been written by Lucy Smith, one of the founder members of the All Umbrella Companies Are Equal regulatory group.

How much of an impact are compliance issues having?

Having a handle on contractor management in recruitment is critical in the smooth running of a business. This month we asked you for your feedback on some of the most important issues related to this subject. Extract from Article published in Recruitment International – October 2014 – Contractor Management How much of an impact are compliance issues having?

Wesley Scott, director of Liberty Bishop and member of All Umbrella Companies Are Equal, commented, “2014 has seen new legislation which impacts upon the way in which payroll companies are required to operate and, just as importantly, the way in which recruitment organisations need to interact with payroll providers in order to avoid risk. These changes came as a ‘heavy blow’ to some non-compliant payroll operators. In contrast, true fully compliant providers of PAYE umbrella services have not needed to change any aspect of their service. Instead, most have been busy assisting agencies on how to implement due diligence strategies…and this has resulted in substantial growth due to improved agency understanding of how to avoid non-compliant providers. If you have yet to implement a due diligence process, we would advise you to act NOW.”

Click here to download the full article.

Can I claim the cost of postage for sending in my ID Documents to my umbrella?

We have been approached by a contractor following on from the recent article published in relation to the new ID checks that are to be enforced by the Home Office. They are asking the question as to whether the cost of the postage to send in these documents can be recouped as an expense through their umbrella?

Lucy Smith of ContractorUmbrella responds: The question of whether or not the cost of postage can be claimed has the same rationale as any other expense; you will have had to pay to send your documents to your umbrella company because you have undertaken the contract and for no other reason. Therefore the requirement for ‘wholly and exclusively’ is met and the cost is allowable as an expense. With regard to the mileage claim for travel to the post office, in theory yes it would be allowable.

However, you would have to prove that there is no duality of purpose so you wouldn’t be able to post anything else at the same time as you posted your ID and, if you had a post office that was in walking distance but you chose to drive HMRC may question it.

ID Check Confusion: All Umbrella Companies Are Equal look for confirmation from the Home Office as to what is an acceptable ID check?

Following on from the update to the “Code of Practice” on preventing illegal working released by the Home Office in May this year, All Umbrella Companies Are Equal has been in dialogue with them about the way in which this affects the contracting market.

The original update specified, that as of May 16th 2014, every umbrella company had a responsibility to ensure that employees are legally entitled to work in the UK and that this must be done either in person or via video link with the contractor whilst in receipt of original documentation.

All Umbrella Companies Are Equal received written confirmation from the Home Office as to what is deemed an “acceptable” ID check for every compliant umbrella company.

The Home Office responded as follows:
“Certified copies or any other form of ID have never provided an employer with a statutory excuse against the liability to pay a civil penalty in the event that any worker is found to be working illegally. The only way to gain protection for any employer against civil penalties is by seeing original documentation and either face to face meetings or video link confirmation.”

The Home Office also confirmed that “whilst you are free to use technology to “help” with the document checking, you will still need to see and copy the original in order to comply with the guidance given.”

There has been much debate as to what is deemed as acceptable in the industry, with some companies insisting that there are other ways of verifying ID; this appears not to be the case and any umbrella company not complying with the guidance could now face penalties of £20,000 plus if illegal workers are found to be under their employment.

All Umbrella Companies Are Equal is keen to ensure all of it 35 members are at the forefront of current legislation and industry changes, helping to provide reassurance to any contractors and agencies that choose to work through them.

HMRC issue email address to assist individuals with queries on intermediaries contracts.

HMRC has released details of an email address that has been set up for anyone wishing to make HMRC aware of different types of models being promoted as an alternative to the changes to the employment intermediaries legislation. Over the years many of these schemes can appear with different names, ranging from EBTs to simple loan schemes. This isn’t to say that all such models are set up deliberately to get around the new legislation, but should you have any concerns then you can, if you wish, provide the details to HMRC. HMRC set up this email having received many requests from both companies and individuals to query such scheme’s. HMRC anticipate that it will be used to provide copies of contracts being offered, which are of concern, so as to seek HMRC’s technical view.

If you have any queries with contracts provided by such schemes, or companies claiming to be HMRC Approved or QC Approved, then the email address is: employment.intermediaries@hmrc.gsi.gov.uk