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.
Probes into the tax affairs of builders and property developers are an increasingly significant source of revenue for the public purse, official figures show. The yield from HMRC compliance investigations of the construction sector – which has long been believed by the department to encourage tax avoidance through false self-employment – grew by 18% to £78.9m in 2011/12, from £66.9m the 12 months before.
The most recent amount was the highest in five years, rising from £56m in 2006/7, shortly before the introduction of the Revenue’s construction industry scheme (CIS) to regulate the taxing of subcontractors’ pay by contractors. It can be hard for firm to work out if a subbie should be covered by CIS or be treated as an employee, according to Graham Jenner, director of the NoPalaver group, which acquired the government data through a freedom of information request. He claimed the taxman sees construction businesses as easy target of a wider effort to boost income through compliance efforts.
“Working arrangements in the sector are complex, with self-employed subcontractors moving between jobs on a regular basis. Irregular working patterns like this create plenty of opportunities for errors with paperwork and tax status,” said Jenner, whose company provides accounting services to contractors and personal service companies.
He stressed the importance of good recordkeeping by construction businesses and workers “to prove to HMRC that their tax treatment of a sub-contractor is justified”, and went on to claim the annual revenue from builders and property developers is small compared to that from the Revenue’s overall compliance investigations. The situation “begs the question as to why the department is spending time pursuing small contractors and subcontractors when it could be focusing its limited budget on the tax affairs of much bigger businesses”, added Jenner.
I-Paye Limited are the latest umbrella to join the All Umbrella Companies Are Equal Group. We welcome the addition of I-Paye who bring a wealth of experience within the industry to the group.
We asked Paul Hughes, Director of I-Paye why he felt it was important to be part of this group.
“Having worked in the Service Provider sector since 1997 I have believed, for some time, that Umbrella Service Providers have needed a focal point to rally around that has no political and/ or commercial agenda of its own. All Umbrella Companies are Equal (AUCAE) only concern would seem to be that it wishes to further the interests of all its members and the wider Compliant Umbrella Service Providers as a whole, both with HMR&C and the UK Government in General. I believe that AUCAE may just be what the sector has required and reminds me very much of what the Professional Contractors Group was set up for all those years ago. I am happy to add my experience, technical expertise and voice to those who are already members.”
Contractors who worked through the Edge EBT Scheme between 2009 and 2010 are now receiving letters from HMRC looking to recover unpaid taxes. On a recent forum discussion, it was confirmed that Edge has now ceased trading, and that contractors looking to speak to them about recent letters and investigations are unable to gain contact or response from the company. One contractor stated: “I’ve noticed today that a large amount has appeared as owing in my HMRC self-service portal. This is showing up as relating to the 2009/10 tax year. 2008/09 is still showing as ‘Currently suspended on appeal’.”
Roger Mason of Back Office Umbrella Company turned his back on the industry in October 2013 after a ruling at a Birmingham Employment Tribunal. His previous company, Paymaster Ltd, was found not to be employer to the workers who used the scheme partly because it was the recruitment agencies who worked with Paymaster that provided assignment schedules and not the umbrella company. The employment status of workers using an umbrella company is fundamental to the business model.
A Contract of Employment must be in place and it must give continuity of employment. The legal precedent used by HMRC to distinguish between a ‘contract of service’ (employment) and a ‘contract for services’ is that of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance. The matter was referred to the High Court on appeal and the Judge in the case, MacKenna J, stated that there were three issues that needed to be considered when deciding whether an individual is working under a contract of service:
· The servant (worker) agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master (employer). · He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master · The other provisions of the contract are consistent with it being a contract of service.
In the Paymaster case, the tribunal judge said that the second criteria for determining whether or not the worker was an employee had not been fulfilled. An umbrella company should send each of their employees an assignment schedule for each new assignment that they begin, including extensions. This should give details of the client, work location, start dates and end dates, job specifications, training requirements, maximum and minimum working hours and assignment rate. In the Paymaster case this information came from the recruitment agencies which also had input into the way the umbrella company processed holiday pay.
The agencies also gave the workers no choice in working with Paymaster which was also considered to be indicative of control on the part of the agencies rather than the umbrella company. Had the tribunal considered that a contract of employment was in place they would then have probably considered whether it was over-arching. A worker who engages with an umbrella company will work on a series of assignments which would be considered to be permanent workplaces without an overarching contract to give continuity to the employment. If an umbrella company is found not to be operating an overarching contract their workers would have no entitlement to tax relief on costs for travel and subsistence. In order for a contract to be overarching it has to have mutuality of obligation in the gaps between assignments and that must be in the form of payment. It is not enough for an umbrella company just to guarantee a minimum number of hours work; there must be mutual obligations and there must be a sufficient degree of control exercised by the umbrella company.
Unfortunately Paymaster failed to comply with these requirements and the workers were left out of pocket.
In a recent article from http://www.coindesk.com it was highlighted that the possible application of VAT could serve to kill the bitcoin. Bitcoin faces many hurdles before it may become an everyday currency. For businesses, one of these hurdles is the uncertainty surrounding its tax status. Across Europe, sales tax is known as Value Added Tax (VAT).
When a nation begins to charge tax against bitcoin, many may interpret it as acceptance. As Tom Gullen described on his blog, Her Majesty’s Revenue & Customs (HMRC) seems to be classifying bitcoins as vouchers, which means VAT would be due on any sales. A 20% mark-up on bitcoin prices would make UK exchanges untenable. In addition to Gullen’s statement, an independent source told us that HMRC had given them the same classification.
We also spoke to Dr Tom Robinson of the UK-based bitcoin exchange BitPrice and consulting firm Blockchain Consulting, who recently attended the Financial Innovators Summit at 10 Downing Street.At the time, it was said that he “left the meeting feeling largely optimistic”. However, his subsequent communications yielded the following statement from HMRC: “Our Policy teams’ view is that these are not currency. It is our view that the provision of bitcoins is the sale of vouchers. These are likely to be ‘single purpose’ vouchers.” Following on from the meeting it was confirmed that Bitcoin have a commitment from the Treasury to consider how it could achieve recognition in the UK.
I have recently received the following question with regards to supply teachers and how it works if they are to work through an umbrella company, so I thought I would share the answer.
This site looks great, I’m encouraged to find someone trying to sort out the good from the bad in regards to umbrella companies. I was wondering if you have dealt much in the past with umbrellas in regards to supply teachers. My wife has been a supply teacher in the past, and was considering doing it again. I was hoping she could be self-employed and contact the schools directly. From what I can tell, it would seem that a school would want an invoice via a limited company, and so having to use an umbrella is likely. What I can’t figure out is how joining an umbrella company allows supply teachers to submit expenses? Is there any specific regulations you know of that outlines the difference? What I’ve read states that supply teachers will be considered to be employed by the schools? Does that impact expenses? Does something like the below seem legal to you, an anecdote from TES, a teacher discussing signing up to an Umbrella: “I worked for [My Key Payroll] for 6 months, they were great! I was paid double what I am now as a school contracted teacher. I travelled 100 miles a day, so the benefits of claiming expenses was fab. I was in 1 school for those 6 months as PPA teacher, then the school took me on from September. So I’d recommend them!” http://community.tes.co.uk/tes_supply_teaching/f/62/t/555773.aspx Thanks so much for your time. Apologies if this is unclear.
OK let me explain:
There are no special rules surrounding supply teachers with regard to claiming of travel expenses; tax relief on travel expenses can only be claimed if an individual is travelling to a temporary workplace. If a teacher is engaged by a school for a fixed period of time, this will be considered, by HMRC, to be a permanent place of work for the duration of the assignment (http://www.hmrc.gov.uk/manuals/eimanual/eim70755.htm).
However, an individual working through an umbrella company will be employed under an overarching contract of employment which creates continuous employment across many different assignments. For instance, a supply teacher could work for 2 months in one school and then move to another for a month and, although she will have worked on 2 separate assignments, the continuity of the employment with the umbrella company would not have been broken. What constitutes an overarching contract of employment is complicated and if an umbrella company does not have the correct contract in place the workplaces of their individual employees would not be considered to be a series of temporary assignments and therefore there would be no tax relief allowable on the cost of travel.
For a more detailed explanation on how an overarching contract works please click here.
Well once again, I have been contacted by a contractor who is being told they can use expenses as a way to gain tax relief. Lets take a look at the correspondence we have received. This is part of the initial conversations that were had between the contractor and the umbrella company:
The Umbrella Company stated: “Although receipts aren’t needed for some claimable items, HMRC stipulate that we audit a selection of expense claims for each pay period. So, if your claim is selected for audit you will need to provide the necessary receipts to us otherwise we will have to forward to HMRC for further investigation.”
In theory, this all seems self explanatory, until you take a look at the payslip:
As you will see there appears to be an excessive amount of expenses that have been processed, logic says that it is highly unlikely that you would be working for £232.00 to then go on and claim nearly £900.00 in expenses. What make this even more worrying is that this is repeated for the next 4 weeks with nearly identical amounts claimed for expenses.
The contractor continues: “The company explained the extra expenses to me by stating that as they are an accounting company they have certain dispensations etc.” The most worrying thing is that, as confirmed by the contractor, they never incurred any of these expenses, so if HMRC came knocking there would be no receipts to show for the claims made.
When the contractor queried this with the company, they suggested they contact HMRC for peace of mind! At this time no conclusion has been reached, and the company are ceasing to make any further comments.
It appears that the revenue are now paying an interest in Darwin Pay contractors. In a recent piece listed on a popular contractor forum, a contractor stated the following:
I received a letter from HMRC Revenue & Custom on 15th Oct (Saturday) for an outstanding tax on the earning I had through umbrella company “DarwinPay Partnership” in 2010-2011. I have contacted Darwin and am waiting for the advice but would appreciate if you anyone has any piece of advise to offer. The tax due is 7,500 GBP and the deadline given is 14th Nov 2013. I am currently outside UK and it makes more difficult for me to apply for appeal.
Questions: 1. Is there any way I can reduce this tax if I can’t get rid of complete amount? 2. Is there any way I can pay this in monthly installments rather a full payment as it’s a quite big amount? 3. How should I file an appeal when I am outside UK and what information I need to put in the appeal? Thanks for help in advance.
Is this the latest company in a line of many that are being looked at by the revenue and leaving contractors facing large tax bills and potential fines?
Compliance is a hot topic at the moment, as HMRC is once again brandishing the threat of debt transfer for recruiters unwise enough to engage with offshore intermediaries. But what exactly does compliance mean? I’ll warn you now – this won’t be the most interesting article you’ve ever read but it will tell you what recruiters need to add to their due diligence checks to ensure ‘compliance’ according to the HMRC definition. Adherence to legislation is one thing – IR35, MSC legislation, AWR legislation, EC Working Time Directives – the requirements for compliance for all of these is pretty straightforward.
What’s not so straightforward is what HMRC expect from a ‘compliant’ umbrella company; their guidance is just that, it is not rooted in legislation. Umbrella companies are employers who work with contractors via an over-arching contract of employment and they have all the statutory obligations of any other employer. This means that they are obliged to pay maternity pay, paternity pay, adoption pay and sick pay and all these payments must come from the umbrella company’s bottom line. It is not acceptable for an umbrella company to make deductions from the contractors’ salaries and then pay the money back to them at a later date under the heading of a ‘statutory payment’.
Umbrella companies are also responsible for holiday pay; some are still making these payments as part of the contractors’ regular salaries, a process referred to as ‘rolling up’ holiday pay; this was outlawed in the EC Working Time Directives.
Click here to read the original article as published in Global Recruiter, in October 2013.