The Government published a policy paper on 30th October concluding the “tackling non-compliance in the umbrella company market” consultation.
The new measures were proposed after a comprehensive consultation involving both the previous government and stakeholders in the labour supply industry. This collaboration was key to HMRC acknowledging that compliant umbrella companies play a positive role in the contractor industry.
What were the proposals?
The intention of the measures is to act against non-compliance in the sector that negatively effects workers, Treasury and compliant umbrella companies.
The consultation comes with a HMRC commitment to work together with the sector, including businesses, agencies and compliant umbrella companies, in order to get everything in place for the 26/27 tax year.
Such measures bring the tax position for umbrella company workers in line with agency payroll, shifting the responsibility for PAYE and NI liability to the agency closest to the client in the supply chain. This would mean that although agencies can still outsource payroll to an umbrella company, they will ultimately be accountable if the umbrella company fails to pay the PAYE and NICs to HMRC.
Although there is ambiguity in the wording of the policy, it is generally understood in the sector that there will be 3 options available to agencies:
- Continue working with their current umbrella company and undertake more due diligence to ensure the umbrella company is acting in a compliant manner. This is by far the easiest and least disruptive route for agencies and workers alike.
- Deduct the PAYE and NICs as part of in-house payroll. This will lead to an increase in overheads, time, staff and admin not to mention dealing with the additional layers of risk and cost associated with the recently published Employment Rights Bill.
- There is also the suggestion of withholding PAYE and NIC before making payments to the umbrella company in the supply chain which would be challenging to administer. We are waiting for the government to elaborate further on this point.
What to do post consultation?
We have highlighted a few recommendations at this stage for agencies trying to navigate the new landscape:
Evaluate your supply chain
Are you aware of every step in your supply chain? Analyse the function and role of each member in the supply chain and ensure extra vigilance is taken particularly where you have a long supply chain or where there are overseas entities involved.
Review your PSL
Identify if all the umbrella companies in your PSL are trustworthy, ask yourself if the company has a good track record and reputation in the industry. It’s a good idea to regularly review this to ensure your PSL only contains reputable umbrella companies.
Monitor referrals
Use of non-compliant umbrella companies can be very tempting with offers of high take-home pay. Remember that if it sounds too good to be true, it probably is! Once you have confidence in the umbrella companies on your PSL, you should monitor your referrals to ensure they are only going to these companies. This may involve checking the payroll processes.
Carry out your own due diligence
Due diligence should be standard practice on a frequent basis for agencies in order to ensure compliance moving forwards. This is at the core of ensuring a compliant supply chain, it provides peace of mind for all parties involved and compliant umbrella companies like Focused would welcome such checks for review and audit.
Contract indemnities
The Government has anticipated that agencies continuing to outsource their payroll may turn to their contracts to mitigate risk. PAYE/NIC legal indemnities within your contracts is already commonplace with compliant umbrella companies. It would be advisable to choose umbrella companies with robust finances as it will strengthen said indemnities.
Ready to talk?
If you have any questions or concerns about the new proposed measures then please do not hesitate to get in touch with us on 0161 923 0210 or email us on info@focusedgroup.co.uk.