Self-employed umbrellas seem to be the new “in thing” – it’s almost like umbrella companies around the country had a eureka moment all at once and decided to run a “new model” to catch everyone they couldn’t put through the typical PAYE umbrella.
Self-employed models are nothing new, they’ve been around for years – particularly in the construction industry and when you take into account that all the self-employed model is doing is effectively making one straight payment to the guy (after retaining its margin) without the headache of PAYE it seems far too simple.
It is in fact simple, and there’s no fancy tricks to it, no complicated formulae, or backward calculations. There are no messy expenses issues to navigate or P45s & 46s, P11Ds or P60s – the individual does his own return at the end of the year – simple! So why not make everyone self-employed and avoid the umbrella headache? And what is the “self-employed” umbrella actually doing for its margin?!
If it’s done right (and therein lies the problem) it does work well. It isn’t suitable for every individual and that is the first minefield to overcome, yes you can give the guy a self employed contract but it has to contain the fundamental self-employed status criteria of lack of personal service, lack of control and lack of mutuality of obligations AND it has to reflect what actually happens in practice – does he have to give personal, is he controlled and is he obliged to do the work – if so he shouldn’t be self-employed.
On top of this there is the Working time Directive to navigate, he might not be an employee but is he a worker? If so he will be entitled to holiday pay – the rules are very similar to status but they aren’t clear cut. If he’s a worker he can be self-employed for tax purposes yes, but he must have certain employment rights, including his holiday pay.
On top of this there is agency legislation to consider, is the “self-employed” umbrella set up correctly are its contracts up the chain contracts for the supply of services? If they are contracts for the supply of people, or their invoices detail a list of people they could be deemed an agency themselves by HMRC and all the individuals are now agency workers – that’s PAYE and NI on all you’ve paid them thank you very much Mr Inspector!
And that’s not all – there’s MSC issues to consider – self-employed models do not appear on any specific exemption anywhere? The guys are simply getting salary, none of their remuneration is taxed at source. The truth is the MSC legislation is worded so widely that, unlike fully compliant PAYE umbrellas that have a first line defence, the only defence to self-employed model under the MSC legislation is that there is no third party promoter or facilitator – so that agency you’ve agreed to give a kick back to has suddenly dropped you right in it!
And then of course there’s the impending AWD – are the guys genuinely self-employed, are you definitely not caught by the agency legislation, are the guys definitely not workers, are you definitely not an MSC – then you should be ok!
So yes the self-employed model is seemingly money for old rope, and simple to run, but it’s got to be done right – and those who thought setting up an self-employed arm to their umbrella was a simpler, less compliance intensive option, should think twice – there is no such thing as less compliance in the contracting world!
About the author: David Harmer
David left Accountax as Operations Director in December 2010 where he regularly defended clients against HMRC attack up to and including tax tribunal level. He was a much sought after umbrella specialist and in January 2011 he set up Marble??, an umbrella company providing a 100% compliant service to contractors.
David Harmer. Director, Marble Commercial Contracting
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Image: Find the idea by khalid Albaih
