Tag: IR35

Decision damages the flexibility of the UK labour market

Yesterday, the newly appointed Chancellor, Jeremy Hunt, upended much of the Mini Budget that his predecessor, Kwasi Kwarteng delivered less than a month ago. Hunt announced that he would scrap a planned repeal of the IR35 reforms (off-payroll) which came into effect in April 2021.

In the Mini Budget speech titled ‘The Growth Plan 2022’ that was given in September, Kwarteng delivered on Prime Minister Liz Truss’s promise to review IR35 legislation.

Understandably, this has caused frustration in the off-payroll community following hope of the repeal of legislation that added unnecessary complexities to the contractor workforce and organisations.

Clarke Bowles, Chief Revenue Office at My Digital spoke exclusively to TALiNT International:

“The new Chancellor, Jeremy Hunt has effectively lit a match under the Mini Budget, as a result the off-payroll working rules will remain in place for both the public and private sectors creating a multiverse style glimpse into what could have been. The repeal of the repeal effectively means business as usual as it has been since 2017 for the public sector and 2020 for the private sector whereby the end client has the responsibility to assess and then pass down an SDS (Status Determination Statement) and the fee payer carries the majority of liabilities. Cancelling the Off-Payroll Working Rules repeal seems, dare I say it, like a ‘blanket approach’ to all of Kwasi’s Mini Budget points and this one in particular won’t help the growth of the economy which relies heavily on flexible workers in the UK labour market, the repeal had the potential to serve as a catalyst to economic growth it’s unfortunate that we came so close to this being a reality but are unfortunately left with a piece of legislation which was never really fit for purpose. Whilst IR35 is incredibly complex I will continue to advise that accurate and fair assessments are and always have been the way forward, ensuring those who are genuinely outside of IR35 can continue to work in that manner.”

IR35 specialist, Qdos, also responded to the news. Qdos CEO, Seb Maley, said: “I’m lost for words. The chaos, uncertainty and disruption caused by the mini-Budget is unprecedented. While U-turning on some tax cuts made sense, cancelling the repeal of IR35 reform is the wrong decision at the wrong time. It’s a knee-jerk reaction from the government and, in my opinion, won’t benefit the economy. IR35 reform damages the flexibility of the UK labour market, which is key to economic growth. Many contractors left the sector after risk-averse businesses stopped engaging them. Repealing reform would have opened the floodgates – a catalyst for the recovery of this sector.

“With IR35 reform now remaining in play, businesses must continue prioritising compliance. The legislation is complex and navigating it can be a challenge, but with the right approach can, in fact, be managed.”

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Contractors will once again be responsible for determining their employment status

Big news came for the contractor workforce last week when Chancellor Kwasi Kwarteng used the mini-Budget 2022 to repeal IR35 reform in both the public and private sectors, stunning and delighting the contractor sector in equal measure.

Mr Kwarteng said IR35 reform had imposed “unnecessary cost and complexity” for “many businesses,” so it will be repealed, “as promised by Prime Minister, Liz Truss.

In fact, during her campaign, Liz Truss only promised that the off-payroll rules would be reviewed, however that’s not stopping the contractor sector celebrating that all IR35 status decisions will be reverting to them from April 2023.

At chapter 3.44 of Mr Kwarteng’s Growth Plan, the government states: “From this date, workers providing their services via an intermediary will once again be responsible for determining their employment status.

“And [they will be responsible for] paying the appropriate amount tax and National Insurance contributions.

“This will free up time and money for businesses that engage contractors, that could be put towards other priorities.”

Matt Fryer, Managing Director at Brookson Group, a People2.0 company, commented on what this means for recruiters. He said: “The U-turn will be welcomed by recruiters as it removes a significant compliance risk form their business and their clients. This should help to unlock the potential of flexible workforces at a time of increasing demand for highly skilled temporary workers, particularly in industries such as IT, engineering and energy. It does not, however, remove all compliance risk from resourcing contingent workers.”

Neil Carberry, CEO at REC also commented: “It is not enough to simply tear things down though – we also need to build. On IR35, retained European regulation, investment zones and infrastructure there is hard work to do on replacement rules, and in some cases little time to do it. Business is ready to help – but we will need action from Government to make things happen. Nowhere is this truer than on skills, where the failure to reform the failed Apprenticeship Levy continues to hold back employer training investment. Reforming the Working Time Directive allows us the opportunity to preserve rights on holidays, breaks and working weeks while removing the administrative nightmare faced by firms in calculating how they comply with the current rules, which were not designed for today’s economy. But we need to move quickly to do this, given the chaos that has been created by some recent court judgements.

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Pledge is greeted with cautious optimism

In an interview with The Sun on Sunday, Liz Truss’s promised to review IR35 if she becomes Prime Minister. Truss was quoted as saying, “The changes that have been made to IR35 are all about trying to treat the self-employed the same as big business. But the fact is, if you’re self-employed, you don’t get the same benefits as being in a big company. You don’t get paid holidays, you didn’t get those benefits. So the tax system should reflect that more.”

IR35 insurance specialist, Qdos, has cautiously welcomed Truss’s pledge.

Qdos CEO, Seb Maley, commented: “Promising a review into IR35 is a step in the right direction. It’s widely accepted that the IR35 legislation and the way HMRC enforces it is fundamentally flawed. Liz Truss must make a review a priority if she becomes Prime Minister. But this mustn’t be lip service or a tactic to win the votes of contractors for whom IR35 remains a massive issue.”

“It’s impossible to overlook the fact that we’ve been here before. IR35 has been reviewed multiple times in recent years, yet still the government have taken very little or no action whatsoever. So you’d forgive contractors and businesses impacted by the rules for taking Liz Truss’s pledge with a pinch of salt.

“Any review of IR35 needs to be independent and far-reaching. HMRC’s very own IR35 status tool is unreliable and inaccurate, which is a major risk to compliance. While the legislation is forcing genuinely self-employed contractors into zero rights employment – a situation where they pay tax as employees but don’t receive any employment rights in exchange. Having specialised in this legislation since its introduction in 2000, Qdos stands ready to contribute to any review.”

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71% percent of contractors are looking for outside IR35 roles

Research amongst contractors, recruiters and end clients by Kingsbridge Contractor Insurance has revealed that IR35 reform has drastically affected businesses hiring contract labour, and recruiters are having difficulties placing contractors within IR35 roles.

According to the research, 71% of contractors insist on outside IR35 roles. However, these account for less than 41% of the roles available. Sixty-six percent of contractors say that with the increase in the risk of greater tax liability, they would not consider inside IR35 roles.

The research also found that over 70% of businesses and recruiters saw a drop in the numbers of PSC contractors since the introduction of IR35 with the Check Employment Status for Tax (CEST) tool affecting the availability of essential contract labour. Thirty-eight percent of the respondents whose end clients use the CEST saw a reduction of 61% or more, whereas those who use independent employment status tools saw a reduction of only 23%.

Further findings were that 70% of end clients adopted a collaborative approach with their recruiter to establish the IR35 statuses of contractors, indicating the importance of recruiters in determining the status. However, when recruiters have end clients who use CEST, they have had the least involvement. One of CEST’s failings is that it doesn’t promote collaboration with recruiters and increases the risk of inaccurate determination.

While many recruiters felt that their end clients weren’t prepared for IR35 reform, many are hopeful for fewer blanket bans on contract hire in the future. Tellingly, the users of independent employment status tools find that more of their end clients are making an about-turn on their blanket bans than the CEST users.

Andy Vessey, Head of Tax at Kingsbridge Contractor Insurance, commented: “HMRC was severely under prepared for the private sector reform, and CEST simply isn’t fit for purpose. However, there are some signs of positive change. There are more U-turns on blanket bans and contractors are optimistic about their future job prospects. To accelerate this change and avoid losing access to the skilled talent businesses need, three things need to happen:

  1. More education is needed to address the issues still being experienced. A better understanding of IR35 would be much healthier for the market as a whole
  2. CEST must be made fit for purpose and take Mutuality of Obligation (MOO) into consideration
  3. Companies can legitimately hire experienced contractors outside of IR35 but, to do this, the use of purpose-built tools, advice and insurance should be sought. This will provide the right process to mitigate against the perceived risks of hiring contractors.”

With no end in sight where labour shortages are concerned, the use of the CEST when placing IR35 candidates is only hindering the hiring the process.

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Over a year on from the IR35 changes are you compromising your talent acquisition strategy by providing a lack of choice for your flexible workforce? 

It’s now over 12 months since the Off Payroll Working IR35 reforms impacted the private sector.  Now is a good time to reflect on how the market reacted, and over a year on, how businesses are reviewing their approach to their contractor talent base. Let’s have a quick recap of the key change the legislation brought for hirers.   

Since April 2021, contractors can no longer choose their own IR35 status. Instead, the responsibility for determining status, was moved to the hirer.  The hirer needs to decide if the worker is inside or outside IR35 and then inform the supply chain of their decision.  This decision on status is very complex and many hirers have had concerns about getting the decision wrong and the potential implications for them financially and reputationally.   

Looking back it is clear that the vast majority of hirers have responded to the changes by adopting a risk averse position.  Many clients have chosen to simply avoid the question of determining status all together, and instead opted to classify all contractors as inside IR35. The consequence of this significant tax increase for contractors has led in many sectors, to an increase in contractor pay rates as hirers compete for talent.  The shortage of talent during a surge in recruitment post the pandemic has further fuelled pay rate inflation. 

As a consequence, we have seen the vast majority of contractors being forced to change the way they are engaged and stop using their personal service companies (PSC’s).  Instead, a significant number of contractors have been “taken on the books” and offered fixed term or permanent employment contracts by hirers. 

For many HR departments in April 2021, offering contractors full time employment with them directly felt like the lowest risk decision in light of the significant financial and reputational risks of getting IR35 wrong.  Whilst this may have been a quick fix, hirers are now understanding that moving contractors on to fixed term contracts, increases their employment risk rather than engaging them via a contractor management service such as an umbrella company.  Adding contractors to a permanent payroll can also increase complexity as it dramatically increases onboarding and offboarding as well as often complex pension arrangements and obviously the heightened risk of employment claims.  

At a time when the recruitment market is red hot with businesses looking to scale after the pandemic, many of these companies are finding that those contractors are leaving their fixed term contracts to seek contract work again.  For many contractors the reason they chose contracting was because of the variety of work they could take on and the flexibility to choose when and how they wish to work, not to simply reduce their tax bill. 

For hirers, they are also realising that the need for a degree of flexibility in their workforce is key now that many business strategies were ripped up in 2020 and companies are reshaping the size and make up of their workforce to ensure growth or even survival.  Some tech and other businesses now have less than 50% permanent headcount. 

At the start of 2022 we see many hirers, with an inhouse recruitment focus, looking to engage contingent workforce management specialists to ensure they can offer a full range of compliant payroll offerings to attract the right quality and mix of talent.  The right partner can facilitate the IR35 determination process and then provide the full range of payroll options.  They can also offer full indemnities against the risks associated with compliance, including IR35, so a hirer can have the assurance they are mitigating risk and not compromise on talent acquisition. 

So what does a full range of payroll options look like? 

Fixed term contract: this can of course be the most suitable option for some contractors. There is however no need to contract with these workers yourself, and the right workforce management partner should offer to engage these workers directly to remove you from risk and the burden of running payroll which can be complex.  For example, many contractors now expect to be able to pay significant sums into their own nominated pension provider and this significantly increases the payroll burden for businesses. 

Umbrella employment: an umbrella partner, or a preferred supplier list of chosen providers, can help give contractors choice in how they wish to be paid.  Your workforce management provider should be able to help guide you on a suitable process to ensure you pick compliant providers to work with and avoid rogue suppliers who increase your compliance risk. 

PSC’s (inside or outside of IR35): it is perfectly possible to still pay contractors via their limited company.  If you have an appropriate status determination then your workforce management partner should be prepared to be the fee payer and carry the risk.  Even if a contractor is determined as inside IR35, their PSC can still be paid and your partner will deduct the necessary taxes and pay across to HMRC. 

CIS: for those hirers in the construction industry, the Construction Industry Scheme or CIS for short allows any self-employed person to have tax deducted by an appropriate payroll partner and make payments to HMRC on the contractor’s behalf. The remaining tax liability for the year is then settled via the contractor’s self-assessment tax return (SATR). 

Choosing the right workforce management partner can ensure that a hirer provides a full range of choice to a contractor when looking to engage them on business-critical projects.  The right partner should also be prepared to indemnify the client from risk to ensure the business can be assured they are complaint.  IR35 may have disrupted the market, but as the dust settles the most agile hirers will beat their competition by attracting the best contractors to deliver business goals in 2022. 


*About giant  

For over 30 years giant has been a specialist in contractor management. Our flexible proprietary software and managed services platform, giant one, can manage contractors through-out their life cycle with you, from candidate attraction, screening and on boarding to timesheet management, billing, employer of record, payroll and payments. In the UK and internationally.  

 Uniquely, the giant one platform is suitable for any organisation with 20+ contractors so you don’t need to worry that your contractor numbers are too small to benefit.  

We take compliance with the complex regulations governing contractors very seriously. To underline our compliance commitment to you, we contractually indemnify you against any tax and employment risk when we manage your contractors.  

And we are independent. Unlike others we do not provide agency recruiting services and we have no affiliated companies that do either. Our neutrality ensures we advise you only, on what’s best for you and your contractors.

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71% determined IR35 tax status of contractors via individual assessment

Research by Brookson Legal has found that UK businesses using contractors and freelancers plan to review their IR35 solution before HMRC transitions to enforce the new ‘off payroll working rules’ introduced in April 2021.

According to the research, when asked in Q4 2021, 25% of medium to large businesses now responsible for the IR35 compliance of their contractors had already reviewed their solution with 31% planning to do so before January 2022 and 27% planning a review before April 2022. With HMRC transitioning from its education phase to enforcement of the new legislation, these findings demonstrate the diligent approach the majority of organisations are taking to ensure compliance.

However, 17% of businesses will not be reviewing their solution before April, 4% of which do not have an IR35 solution in place. This is concerning, particularly when considering the approaches that some businesses have taken to IR35. While 71% determined IR35 tax status of contractors via individual assessment on a contractor-by-contractor basis, 41% are also using role-based assessments and 25% have applied a blanket decision across their whole workforce or subsets of the workforce.

Matt Fryer, Head of Legal Services at Brookson Legal, the only Solicitors Regulation Authority accredited IR35 specialist law firm, commented: “April marks the next milestone in the IR35 journey for the private sector, with HMRC moving into enforcement and beginning to investigate compliance.

“For all organisations – whether they believe they are compliant or not – this is an essential opportunity to review their IR35 solution and ensure it not only meets HMRC’s threshold for reasonable care but, crucially, that it meets the needs of the business and supports its growth. This will enable businesses to truly access the benefits of the flexible workforce and the agility it offers.”

The end of HMRC’s soft-landing coincides with plans by 90% of companies to extend their use of contractors over the next 12 months to support business growth.

This is particularly important as 29% of businesses surveyed said their approach to IR35 was an interim solution which would be replaced in the near future. Comparatively, 25% said their solution has been designed to evolve in line with their business, while 45% said they view their approach as a fixed solution which will be retained.

Matt Fryer added: “For ongoing compliance, regular reviews of contractor status determinations should be undertaken in line with reasonable care obligations.

“Users of HMRC’s Check Employment Status Test (CEST) should also use this milestone to consider their use of the tool. A recent review of the new legislation by the National Audit Office found that CEST requires further refinement and additional user guidance. Organisations which use the tool should review their contractor status determinations as a priority.

“Once we are over the teething problems for the new rules and end hirers have embedded IR35 practices as business as usual, they should provide an effective framework for accessing the benefits of a flexible workforce. For this reason, it’s important for businesses to use the end of the soft-landing period as a welcome period of reflection; to review their solution and implement a robust approach that can realise the flexibility and agility IR35 can deliver.”


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Despite new IR35 regulations and guidance in April, and the Department of Work and Pensions and Home Office hit with fines of £87m and £29m, respectively. HM Courts and Tribunal Service has fallen victim of CEST misuse with a total fine of £12m.

Commenting on the latest Check Employment Status for Tax (CEST) casualty, Dave Chaplin, CEO of IR35 Shield said: “HMRC’s CEST tool is failing fast and now we are hearing of yet one more government department, HM Courts and Tribunal Service, hit with a high tax bill to the tune of £12m because it has relied on CEST to assess its contracting workforce. One of CEST’s major flaws has been its over-reliance on substitution, which any defence expert knows is folly. Over the last few years, many industry experts have pointed out CEST’s failings to HMRC but those messages were ignored and now we are witnessing the fallout and financial damage.

“My advice to anyone who has used CEST is to revisit your determinations and if they rely on a valid right to substitute then seek advice on the correct interpretation of the law. Also, recheck the status with the assumption that the substitution clause is not valid, to make sure you have not also been badly exposed due to the flaw.

“Moreover, it is crucial that once you hire a worker on an “outside IR35” basis that you continue to monitor the status throughout the engagement. Regular checking and gathering contemporaneous evidence are crucial in forming a pre-emptive defence.  Poor assessment decisions left alone, without any evidence to back them up, can prove costly as we are seeing with these recent governmental departments.”

The FCSA, the membership body dedicated to raising standards and promoting supply chain compliance for the temporary labour market, responded saying that it had expressed its concern to HMRC about the validity of the CEST tool. “The current fines perhaps demonstrate that the CEST tool needs re-visiting in terms of a valid SDC determination. In the light of the current outcomes, it would be silly for HMRC to simply press ahead without stopping and reviewing the tool.

“In the interim, marketplace experts, including many FCSA members, have developed alternative tools that can assist the sector in creating more accurate determination tests. So far, there is an ironic pattern emerging here in that one government department is taking money from another and so the government balance remains at zero. The real threat comes when other non-government bodies start to fall victim to huge fines because of using a government promoted test. That will not sit well with a sector that is working hard to support the government to ‘Build Back Better’.”

Photo courtesy of Unsplash.com

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HMRC has firmed up off-payroll legislation with new guidance issued in April.

With more employers and recruiters exploring IR35 solutions, HMRC has issued new guidance on Statement of Work to help them and contractors to avoid future liabilities.

“I’m aware of many incidents where Statements of Work are wrongly seen as a magic bullet to disapply off-payroll legislation and there has been a sharp increase in supposed ‘IR35 solutions’ which are simply a change in contractual wording in how someone is engaged,” said Julia Kermode of IWORK, a champion of independent workers and former CEO of the FCSA.

“My advice is simple – be very wary of these models. If a service is genuinely contracted out then a statement of work is perfectly acceptable, however simply amending the contractual wording in isolation does not achieve this and it is likely that you will need to consider the off-payroll working rules. There is no work around or solution to off-payroll, and the sooner everyone realises that the better.”

Clarke Bowles, Director of Strategic Sales at Parasol Group observes that the new guidance from HMRC on SOW has come at an interesting time.

“It would seem to be a reaction to some of the behaviours we’ve seen across the industry since the IR35 reforms in April,” he said. “How you assess IR35 is exactly the same for SOW as it is for any other engagement. Therefore, if something is genuinely outside of IR35 so long as it is accurately and fairly assessed it will be outside for both as it should always reflect the contracts and working practices, so there is an argument that actually getting to the root of the issue and amending contracts and working practices could be a better approach for many and one worth considering.

“Using a Statement of Work for genuinely outsourced services is a sensible way to ensure that expectations and responsibilities of parties are agreed and documented if it reflects the reality of commercial arrangements. However, as a way to circumvent the reforms, it is inappropriate and introduces unnecessary risk.”

Photo courtesy of Canva.com

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By David McCormack, CEO of HIVE360

Recruitment businesses are wrestling with how to cover the increased costs following the IR35 changes that took effect last month. An outsourced PAYE model is the solution as both recruiters and their workers will be financially better off.

Following a year of COVID-19-related delays, IR35 changes kicked-in last month. To comply, recruitment businesses have three options: set-up an in-house payroll facility, cut workers’ pay, or outsource payroll to a recommended PAYE, compliant specialist.

The cost of IR35

The new off-payroll rules mean there is more tax to pay.  Umbrella companies charge recruiters for administering payroll, at an average £20 per worker per week – so that’s around £1,000 per worker a year, based on an £18,000 salary.

An in-house payroll also carries additional costs – we estimate a recruitment company with 400 workers should plan for an additional £30,000 each year in administration and resource costs.

To cover these and the additional tax, recruitment business must either ‘absorb’ the financial hit, or pass the costs on to workers in the form of a pay cut, which, if using an umbrella model, would have to be at least five percent to cover the additional costs.

If agencies offer workers a fair, comparable PAYE rate, workers are financially better off being paid this way. When you deduct the weekly fee and all costs of employment going through an umbrella company, and see the real ‘take-home pay’ for workers, you have to ask if the vanity of a higher umbrella rate (and we all know it’s not really a higher pay rate) is stopping recruiters moving workers to PAYE, which is the ‘IR35 safe solution’.

The cost-savings of outsourcing PAYE payroll to a compliant provider speak for themselves:

  • > Recruiters outsourcing temporary workers’ PAYE payroll to Hive360 report savings of £100 or more per worker in the first year.
  • > A temp agency with 2,000 PAYE temps could see a return of £200,000 per annum.
  • > An employer with 100 employees could achieve a bottom-line return of over £10,000.

Added benefits on-the-go 

HIVE360 is an expert in recruitment agency PAYE payroll including those governed by the GLAA (Gangmasters and Labour Abuse Authority). We are also specialists in wellbeing and benefits provision – and bring all this together in one powerful and unique solution: Engage.

Recruiters that outsource their PAYE payroll to HIVE360 gain automatic, complimentary access for all pay-rolled workers to this employee digital health and wellbeing app.

The app’s features include a personal doctor, personal support helpline, care support, and gym memberships, thousands of high-street and online lifestyle, dining and insurance discounts, mobile phone savings, online training resources, and GDPR-compliant pay and pension information such as digital payslips and a real-time workplace pension dashboard.

Recruitment businesses using Engage record worker engagement levels of over 80%.

Recruiters’ choice

By bringing recruiters’ candidate and HR systems seamlessly together in one mobile experience, and by working closely with our team, Engage delivers customised, accurate, on time and fully transparent agency worker pay, whilst creating significant cost savings on PAYE Payroll and Pensions Administration, as well as improving internal process efficiencies and reducing overheads.

Dean Nixon, Commercial Director of First Call Contract Services told me: “Operating extensively in the GLAA Sector means our business has a big commitment to the welfare of our workers. Our decision to launch a new engagement platform with HIVE360 during the global pandemic was an easy one. By giving our temporary workers access to a mobile app that provides immediate GP services, mental health counsellors, pay and pensions information, means we’re helping to support and protect them ‘on the go’ and can give them immediate access to vital information.”

Tricia Hay, MD of First Base Employment added: “I’m really passionate about making sure we consistently uphold high standards in what is a highly competitive recruitment market, especially in the way we treat and look after our temporary workers. Partnering with HIVE360 has allowed First Base to really take welfare and benefits to an exemplary level for all of our valued candidates and our own staff.”

Speaking about its partnership with HIVE360, MD of Rocket Software, Danny Steel, said: “We had been looking for a strategic partner in the employee benefits space and after reviewing numerous potential partners, we found HIVE360 innovative, collaborative, progressive and creative. Their mobile-based tech easily integrates with our TempID+ software and Pocket Rocket app, and as GLAA license holders with much experience in this vital sector, we felt HIVE360 was a really good fit for us, and so they became the obvious choice for our preferred strategic partner.”

Specialist employee benefits and outsourced payroll provider, GLAA license holder and Inspiring Workplaces corporate member, HIVE360 is championing a new model of employment administration in the UK market, and redefining employment and pension administration processing.  For more information, visit: www.hive360.com  

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The co-chair of the Loan Charge APPG report on the contracting industry has effectively called for an end to umbrella companies by suggesting the government strike out part of its Finance Bill.

Speaking in parliament the week after the APPG’s How Contracting Should Work document was published, Ruth Cadbury MP launched a scathing attack on the umbrella industry.

“The unintended consequences of IR35, off payroll legislation, has been a proliferation of umbrella companies, some of which have pushed people into disguised remuneration schemes,” she said.

She added that the APPG report had, “exposed significant malpractice, including withholding holiday pay and kickbacks for recommending or passing on contractors, even including providing fitted kitchens and holidays for recruitment agency directors”.

Opportunity for change

While she said that long term an alignment of tax and employment laws was needed, Cadbury suggested the government now had an opportunity to stamp out bad practices by making changes to Clause 21 of the Finance Bill, which deals with workers provided by intermediaries.

“The government could simply strike out Clause 21, which would then ensure workers got the agency rights they should be getting. Agencies can run their own payrolls, they do for their own staff anyway, they do not need umbrella companies and neither do their contractors.

“Or, the government could redraft Clause 21 to seek to stop the exploitation but they must do one or the other.”

She said some schemes were not transparent about tax avoidance during the sales process and had caused “misery” for workers.

“The government and HMRC are well aware schemes are still being mis-sold to people, including mid and low paid public service workers, nurses, doctors in the NHS and other clinical specialists, teachers and social workers. And also many in the private sector, IT, business services and so on.”

Levelling the playing field

However, Dave Chaplin, CEO of contracting authority ContractorCalculator, said he did not think it was likely the government would follow Cadbury’s suggestion. “Why should the honest umbrella companies suffer because of the few that are up to no good,” he asked?

“The alternative option is to update the existing Finance Bill to rule out skulduggery, and make all umbrellas operate on a level playing field. That would be the more sensible way forward, and there are some options that might be possible.

Crawford Temple, CEO of Professional Passport, expressed a similar view. “Closing down a whole sector that provides such crucial support to the entire contingent workforce would be an over-reaction. We agree with Ruth Cadbury and have indeed been making the point to HMRC for many years that limiting the ability of disguised remuneration and non-compliant operators to enter the market is essential.

“However, the proliferation of these arrangements is a direct consequence of ill-thought through legislation with the responsible stakeholders in the sector all aligned on highlighting these problems in their responses to previous consultations that have been ignored.

“I would suggest that a collegiate and joined-up approach is what is needed right now to drive up standards and stamp out the unethical practices that are giving the entire sector a bad name.”

More enforcement needed

Phil Pluck, chief executive of the Freelancer & Contractor Services Association, which gave evidence to the APPG for its report, added that it is not only regulation but also enforcement action that is needed.

“The key suggestion is that regulation should apply to the umbrella sector, which the FCSA has been campaigning for for a number of years. But we would go further and say that this also requires robust and visible policing. HMRC are caught between maximising tax revenue and prosecuting tax avoidance criminals. This conflict means that not enough prosecutions end in convictions and not enough directors see the inside of a prison cell.”

He said IR35 reform made this need all the more pressing. “The IR35 reforms will see an increase in contractor numbers and an increased opportunity for unscrupulous agencies and umbrella firms to further exploit this population.

“The FCSA is already looking at how it can bring in greater compliance standards in order to create a more transparent and fairer playing field for these workers but the government must stop dragging its heels on regulation and the resources to prosecute unlawful elements in this market.”

Clarke Bowles​, Director of Strategic Sales at Parasol Group, backed the call for more enforcement. “Investing time pressing government for a single enforcement body helping to drive proper regulation would be far more effective than making sweeping statements about an entire industry, most of whom uphold very high standards of compliance.”

Overly simplistic

Bowles added that Cadbury’s dismissal of the need for umbrella companies was misguided. “A quote from Ruth during the speech said ‘The legislation as originally drafted would have meant that the agency would have to put the worker on their own payroll where they would have enjoyed the protections of existing agency legislation.’

“This ignores the fact that agency workers employed by a compliant umbrella company already enjoy and benefit from full employment rights. Whilst there is no obligation on the fee payer to offer employment rights, adopting this strategy could create large numbers of zero right employees, creating a much bigger issue.

“Ruth suggests that clause 21 be struck out and recruitment agencies run their own payroll ‘as they do anyway for their own staff.’ This completely ignores the complexity of fee payer responsibilities, deductions and the benefits for temporary workers that come with the continuity of employment, benefits packages, employment rights and protections.

“In addition, not all recruitment businesses are able to run their own payrolls, many simply do not have the resources, infrastructure or expertise to do so.”

Photo courtesy of wikipedia.org

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