Professional Passport, payroll intermediary compliance specialists, has released a thorough report on umbrella companies. In the 38-page document, Crawford Temple, CEO at Professional Passport, outlines the industry’s legislation for 40 years. He then provides a series of suggestions to HMRC on how to regulate umbrella companies and stop non-compliance. It’s well worth a read, and more information is below.
Due to recent IR35 changes (off-payroll), umbrella companies are in higher demand than ever before. While most provide temporary workers with compliant PAYE payroll, some are unethically profiting by offering tax avoidance schemes. Most recently, mini umbrella companies (MUC) have been in the news. Innocent contractors had been paid by third-party min umbrella companies – despite not knowing who they were or why they were responsible for processing their payroll.
In the report’s introduction, Crawford Temple, CEO at Professional Passport, explains what the document sets out to achieve and why it’s crucial the government re-evaluates legislation sooner rather than later.
“The forces and drivers that applied back in the late 1990s are very different today. Contracting and flexible working is now formally part of a company’s structure and no longer seen as a way of reducing costs. Contractors provide the flexibility and agility that the modern business needs to survive and thrive.
In this paper, I will reflect on the legislation that has been implemented and imposed on the sector, as well as examine some of the proposals that have been made, and rejected, in a bid to move to a more stable and sustainable environment for businesses. I will go on to make specific proposals and recommendations that will help level the playing field. I will also question whether regulation is the answer to the sector’s problems. I don’t believe it is but will provide an alternative suggestion.
The last three decades have thrown up many challenges for the sector so it is now more important than ever that the everyone in the compliant supply chain along with policymakers takes a collegiate approach to work together so that we can confidently face the future with our heads held high, knowing that we are striving to do the best for the whole industry to raise standards and drive out those who seek to perpetually break the rules and behave unethically.
Only then will we be able to take a confident step forward, safe in the knowledge that we are all working diligently to support the UK’s valuable contingent workforce that politicians purport to support.”
Professional Passport make series of recommendations to HMRC
In the report, Crawford Temple outlines several recommendations for HMRC. We’ve summarised them below.
- A benchmarked PAYE rate which will make life easier for temporary workers to understand their earning potential. This, along with Key Information Documents (KID), will be useful.
- Contractors need to be informed of their IR35 status and supervision, direction and control (SDC). This will help them assess whether a role is suitable or not.
- A new government umbrella company calculator should be created so contractors can use it to understand if the pay being offered to them from an agency is legitimate or not. The new government umbrella company calculator should cover all bases and explain every deduction. Compliant umbrella companies should be willing to refer employees to the calculator – to prove they’re compliant.
- The government should also create an umbrella company payslip checker. This would allow workers to get clarity over any payslips received from umbrella companies.
- More needs to be done by the government to analyse data to report against RTI submissions to identify potential disguised remuneration schemes.
- Government organisations including HMRC, The Department for Business, Energy and Industrial Strategy (BEIS) and Employment Agency Standards Inspectorate (EASI) should work closer with compliance bodies, including Professional Passport and the Freelancer & Contractor Services Association (FCSA).
- Compliance reviews need to be acknowledged more, and they must check the highest quality and compliance standards are adhered to. The report states, “Professional Passport has been actively seeking this arrangement for some time.” More information should be included on the government’s website that showcases what an honest, genuine, compliant payroll company looks like. It should be obvious what a compliant umbrella is, compared to a non-compliant one.
Another section of Professional Passport’s recommendations to the government cover incentives.
- Professional Passport “recommend the removal of the Employers National Insurance threshold with all calculated additional income being used to support an overall reduction in the headline rate.”
- There are incentives for organisations to minimise the hours a worker has to reduce potential pension contributions. Professional Passport suggests employers shouldn’t be able to withhold workers from pension schemes based on their earnings. If a worker is below the threshold, this amount should be set as a benchmark with no employee contributions required – just employer. Should the worker opt out later, the employer’s contribution could stop as well.
- HMRC’s efforts to hunt non-compliant umbrella companies are brought into question. The report suggests that rules should be created similarly to self-assessment tax returns (SATR), where HMRC have 12 months to recover unpaid earnings.
The final part of Professional Passport’s recommendations to the government explores the simplification of existing legislation.
- There is no doubt that existing legislation is complex and challenging to interpret. Therefore, Professional Passport suggests off-payroll legislation is amended, and a new way for Employer’s NI to be covered is introduced. “Where the PSC paid a salary, Employers NI would be charged but not paid until the credit had been used up. Any unused credit at the end of the tax year would be lost.”
- More needs to be done to create networks of business’s committed to compliance. Non-compliance at present usually occurs when existing rules are broken, but little is done about enforcement. To help solve these issues, Professional Passport “suggest creating a framework, similar to that in Financial Services, of Compliance Networks. These networks would take on the responsibility of the compliance of their members.”
Please click on the following URL to view the full report entitled: The Good, The Bad and The Ugly: Addressing the Issues of Non-compliance in the Umbrella and Payment Intermediary Sector
The industry is subjected to a lot of legislation – many of which overlaps
It’s well worth reading the report to see the timeline of legislation that’s impacted the temporary worker sector since the introduction of IR35 in 2000. It’s remarkable how many changes and additions there have been. It’s worth noting that many haven’t worked as the government had intended.
Rather than summarise all of these legislations for you, we’ve written a simple timeline. We recommend you read up on the legislation by viewing the report (page 8 for legislation).
- IR35 – 2000
- Self-billing (recruitment agencies) – 2003
- The Declaration of Tax Avoidance Schemes (DOTAS) – 2004
- Managed Service Company Legislation (MSC) – 2007
- Reasonable Care – 2009
- The Office of Tax Simplification was founded – 2010
- Offshore Employment Intermediaries – 2013-2014
- Supervision, Direction and Control – 2014
- Elective Deduction Model – 2014
- New Expenses Rule – 2015-2016
- Off-Payroll in the Public Sector – 2017
- Flat Rate VAT – 2017
- Disguised Remuneration Schemes Prolific – 2017
- The Criminal Finances Act – 2017
- Optional Remuneration Legislation (OpRA) – 2018
- Key Information Documents – 2020
- Off-Payroll in the Private Sector – 2021
Will the government take notice?
It would be a real shame if HMRC and associated bodies didn’t notice ‘The Good, The Bad and The Ugly’ by Professional Passport. The report highlights the key issues affecting temporary workers’ payroll. It also makes a series of sensible, implementable changes to give the government a much-needed head start.
Dave Chaplin, IR35 expert and CEO of ContractorCalculator, suggests that HMRC should pay attention to the report and do what Crawford Temple has recommended. Dave said:
“MPs and Government should read this very lengthy and detailed report, and in line with their favoured use of boiling down complex situations into 3-word soundbites, I would recommend they do ‘What he said’.”
Only consider using FCSA or Professional Passport accredited umbrella companies
If you’re interested in using an umbrella company for your payroll, we recommend you only use one that has achieved FCSA or Professional Passport accreditation.
Obtaining professional accreditation from either the FCSA or Professional Passport is a big deal. Umbrella companies must prove they operate in full compliance with HMRC and UK tax law, and they are required to undergo a thorough audit. That’s not it – companies undergo ongoing assessments to ensure they remain updated with the latest rules and regulations.
Compliance is critical, and we suggest that you only consider using an accredited umbrella company for your payroll.
Top 10 umbrella companies
If you’re looking for a compliant umbrella company you can trust, please visit our top 10 umbrella companies. They’re all accredited by either the FCSA or Professional Passport, and some have special offers at the moment!