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  • Crawford Temple

IR35 – All change or no change?

Here, in the first of a two-part series, we look at how IR35 is changing (or not), what’s happened over the past 12 months, and why compliance should be the deciding factor for recruiters and contractors alike.

Everything changes but IR35

IR35 enthusiasts were cautiously optimistic when the third chancellor, Kwasi Kwarteng, promised in his, and the then Prime Minister, Liz Truss’s first mini budget on 23 September 2022, to ‘tackle orthodox Treasury thinking’, and repeal the Off-payroll working rules.

However, Mr Kwarteng’s tenure in the position was short-lived as the new Prime Minister and Chancellor made a screeching U-turn and ditched plans to reform IR35, leaving the industry in the same condition as it was in 2017 for the public sector, and 2021 for the private sector.

The Off-payroll legislation that was introduced in these years had an unexpected knock-on effect. Medium and large-sized companies banned limited company contractors; many turned to umbrella companies to ensure continuity and protect their incomes.

This resulted in an increase of disguised remuneration schemes purporting to be legitimate and compliant umbrellas, attempting to lure unsuspecting contractors in with the promise of more take-home pay.

The danger is that these same contractors get drawn into non-compliant schemes that promise much but put their livelihoods and reputation on the line. This is why Professional Passport has been consistent and vocal about the importance of compliance, both from a contractor’s point of view and equally importantly from a recruiter’s.

After all, many contractors rely on referrals from their recruiter, and trust their judgement, meaning that it’s vital recruiters put compliance at the heart of their business.

What should recruiters be aware of?

A compliant umbrella company will offer both recruiter and contractor several advantages. It will:

  • Employ the contractor

  • Offer them all the required statutory rights and employment benefits that they are entitled to – these include holiday pay, sick pay, pension contributions etc

  • Give them the flexibility to enable them to work for multiple end-hirers

  • Have the technological ability to consolidate their pay from multiple hirers into one simple, and easy-to-understand, pay packet

  • Process the full amount of their gross pay through PAYE

The function of compliant companies is to offer an ‘umbrella’ of continuous employment benefits to contractors when they work for multiple end-hirers.

The benefits of umbrella employment to the contractor include:

  • Employment rights – they will receive all statutory rights and benefits including holiday pay, maternity/paternity leave, sick pay, pension contributions etc

  • Continuity of employment even if they work for numerous clients at different locations – this is vital to enable them to apply for mortgages/loans etc

  • Consolidated pay from numerous clients – even if a contractor completes multiple assignments during a week/month a compliant umbrella will ensure that they are paid for all the work they complete and that they pay the appropriate tax/NI, avoiding annual HMRC self-assessment paperwork

  • HR support – if a contractor needs HR support or advice, a good umbrella will provide a dedicated HR specialist as part of the package.

Concentrate on compliance

Before adding any umbrella company to a PSL or when you’re undertaking your annual PSL review, a recruiter should always check out its compliance accreditations.

Professional Passport’s list of Approved Providers offers recruiters a definitive list of all the umbrella companies that hold current, active accreditation. Recruiters can rest assured that if a company is not listed here then they do not hold current accreditation, even if they display our logo on their website. You can find more details of our Compliance Standards here.

A significant red flag for recruiters, and something you should immediately warn your contractors about, is when a new provider suddenly appears on the market and attracts large numbers of contractors to its offerings for no apparent or obvious reason. Make sure that your agency has processes in place to alert you to such happenings, and remain on top of your due diligence checks.

Again, Professional Passport can offer advice and information so that you can conduct your own checks, which should be done in tandem with your contractor’s own reviews of umbrella companies.

To demonstrate your commitment to compliance you may wish to join Professional Passport as a Recruitment Company Member. This free service demonstrates to both end-clients and contractors that you have robust processes in place, and protects you from liabilities through a unique insurance-backed guarantee.

Finally, talk to your umbrella company partners about their processes. A compliant and trustworthy umbrella will be pleased to share this information with you.

Diligence and professional caution should be exercised at every level in order to minimise your risk to financial and legal liabilities further down the line.

Look out for our next blog

Next time, we’ll be looking at the Criminal Finances Act and what you can do to avoid falling foul of it. Keep an eye on our LinkedIn page for part two of our blog series.

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