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Are You Making the Right Compliance Checks?

From April this year private sector IR35 rules changed. This means that contractors’ clients, not the contractors themselves, are responsible for determining the employment status of their contractors. These new rules have led to a change in how people are working – with many of them choosing to work through umbrella companies. It also means that HMRC is seeing a rise in tax avoidance schemes. As an employer, therefore, it’s vital that you know exactly who you’re dealing with.


The new rules


This new off-payroll legislation means that the onus now falls on the end hirer to assess IR35 status. Making an accurate assessment, therefore, is crucial to the compliance process, as any mistakes, unwitting or not, will lead to financial liabilities which they will be responsible for.

The response of many companies has been to simply blanket ban limited company contractors. This in turn has led to a rise in the number of contractors who now work through umbrella companies. Many of these companies, however, are not what they claim to be and some are, in fact, tax avoidance schemes that lure in contractors with promises of a higher net salary.


What can you do?


In light of all this, it’s never been more important for hiring firms to know exactly who you’re dealing with throughout the supply chain. You can ask things like:

  • Who exactly are your recruitment partners?

  • What’s the background of the umbrella firms you use?

  • Are they operating to the highest possible compliance standards?

  • Will their procedures withstand robust investigation?

Knowing your recruiters are working with partners that have been compliance accredited is vital and with many contractors now deemed ‘inside IR35’ opting to work through umbrella companies, it’s essential that you, as a client, fully understand how a compliant supply chain works and how to identify a non-compliant one.


How can you check other parties in the supply chain?


There are a number of things you can do to make sure that supply chain parties you deal with are credible and compliant.

Firstly you can add specific requirements to your contracts with the recruiters that you deal with which will give you a guarantee of reassurance.

You can also make financial checks on firms that you deal with. Check out their financial position by running a credit check on them, and investigate their accounts – if they are independently audited then you have the assurance that the figures they have provided are verified. You can also check for issues such as conflicting business interests, previously failed businesses, financial difficulties, and if they have any offshore connections.

You should also check the contents of their umbrella employment contracts, as well as what insurance they have and what level of cover this involves. Ask to see a copy of their insurance certificates, their VAT certificates and their certificate of incorporation – no trustworthy business will object to you being thorough and scrupulous, especially when you consider the large sums of money that you are trusting them with.


Conduct compliance checks


Ask the recruiters who you work with to confirm the names of any intermediaries they work with and run a similar check on these companies too. You’re looking to spot if they are:

  • A high-risk provider – one more likely to be a disguised remuneration scheme and who may show evidence of malpractice or unethical behaviour

  • A medium-risk provider – there may be no evidence of non-compliance but neither is there any evidence that their services have been verified for compliance

  • A low-risk umbrella provider – these will hold a recognised compliance accreditation and is unlikely to pose any threat to the supply chain.

Increasingly, we’re seeing evidence that recruiters are choosing to work only with approved providers but it is still vital that firms do their own checks and have put in place their own processes to determine compliance. Compliant umbrella firms offer individuals a legitimate contractor management solution that includes all the benefits of employment while being offered a wide variety of choice on assignments.

Legitimate and compliant umbrella companies are also open and transparent in their dealings with the people working with them, and will provide a clear contract of employment which will detail such things as how they will be paid, what deductions will be made and what they are for, how any related expenses will be paid and how their holiday pay is calculated.

The key throughout the whole supply chain and especially with end clients is openness, transparency and clear communication. HR professionals must be aware of every detail of how umbrellas work and learn to recognise any red flags with providers so they can be sure that they’re part of a compliant chain. Have that honest conversation with the firms you deal with, and ask them the key questions for your own peace of mind. Because it’s definitely better to be compliant safe than HMRC sorry.


You’re never alone with Professional Passport

If you're looking to work with a provider that’s earned a legitimate seal of approval, head to the Professional Passport Approved Providers list. Alternatively, complete the quick form on our contact page for a member of our team to get in touch and discuss our accreditations and membership with you.

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