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  • Crawford Temple

IR35 has fuelled non-compliance in the supply chain – Part 2

Last time we looked at how IR35 has misguidedly fuelled non-compliance in the supply chain, and the legislation that was intended to deal with it. Here we look at how recruiters can take steps to ensure that the umbrella companies they partner with are fully compliant and won’t put them or their contractors at risk.

Beware of sudden increases

Experienced recruiters will be well aware of the ebb and flow of the numbers of contractors who work through their PSLs of umbrella companies – it’s part of the plate-juggling they do on an everyday basis. However, if they suddenly become aware of the rise in the number of contractors operating through a specific provider – one whose popularity has recently increased for some reason – that should set their alarm bells ringing and prompt them to conduct detailed checks to establish that the provider is compliant, accredited and operating to the highest possible standards. Sudden migration to one particular umbrella company may be a sign of a new scam in which contractors are tempted away from the original offering into a non-compliant ‘have I got a good idea for you’ scheme which will inevitably be illegal – we will discuss that shortly. We are always happy to assist recruiters with checks on such companies.

Avoid third-party sellers and sales lead generation companies

There are certain umbrella companies who will try to defraud using more subtle methods. At first these firms appear to be compliant businesses and claim that they have an accreditation seal of approval. They also offer significant financial incentive to recruitment agents for introductions – these amounts can be around £400 per contractor. However, with compliant umbrella charges typically coming in at around £20 per week, per contractor, it is difficult to understand how these large sums of money can be offered through standard compliant offerings.

What agents and contractors may not be aware of, however, is that many of these so-called ‘high return’ models operate with significantly higher charges than compliant umbrellas, while at the same time offering higher take-home pay for contractors.

It’s important to note that where compliant tax arrangements are used, contractors’ take-home pay will be broadly the same whatever umbrella company they use. The only difference contractors should be able to notice is that what they are charged varies slightly – generally this is only a matter of pennies difference.

Avoid the ‘Ghost’ system

As we mentioned above, the ‘Ghost’ system is a new type of scam where providers seem to offer compliant arrangements and employ contractors on a standard umbrella-style arrangement. The contracts they offer are compliant but hide a separate offering that is only shared with contractors who express a demand for higher returns.

These new arrangements typically fail to provide contractors with payslips or other payment breakdown information so this information has to be requested specifically by the recruitment agent from the provider. When this information is finally retrieved it bears little reflection to the reality of the situation and is specifically designed to mislead.

Flawed strategy

HMRC already holds all the data it needs to identify non-compliant schemes but the Government is still avoiding pursuing the promoters of these scams and persists with what we think is a flawed strategy of seeking to recover money from the contractors who have been the victims of non-compliant schemes, instead of those who really benefit from them.

Recruiters and contractors alike will only have complete peace of mind and the assurance that umbrella companies are operating above board when they’re able to be confident that they’re working with compliant organisations.

When an umbrella firm becomes accredited with Professional Passport we apply some rigorous and robust compliance standards:

  • Third-party sellers, lead generation or outsourced marketing arrangements are banned. Providers must have their own in-house teams, and failure to adhere to this would see a provider’s accreditation status revoked immediately

  • All income must have full PAYE applied in line with HMRC rules, and none of the following solutions are acceptable – Gross Payment Models, Elective Deduction Model (EDM), Pay Day by Pay Day, Mini Umbrellas, and Offshore Payments

  • No leads received by an accredited company can be passed onto a third-party organisation that has not been subject to a Professional Passport compliance review.

Any breach of these terms will immediately lead to the revoking of a provider’s approved status. However, it’s vital that recruiters support us in this. Any market intelligence we receive will help us to stamp out non-compliance, for the betterment of everyone involved, and we urge recruiters to contact us so that we can continue to ensure that all providers are operating to the highest standards of transparency and compliance.

We recommend that recruiters work only with compliant partners that they trust, and that they are wary of umbrella companies that seem to be aggressively cashing in on new, upcoming legislative changes. Remember to trust your instincts and bear in mind that if something looks or feels too good to be true then it probably is.

You can find a list of approved umbrella providers that have been through our stringent accreditation process here. If you have any concerns about an umbrella company, whether they’re Professional Passport approved or not, and would like to discuss it with us you can do so here.

If you are using any Professional Passport provider as part of your Preferred Supplier Listings you can now sign up to receive free automated alerts. These email alerts will keep you fully informed of the status of your selected PSL providers and advise if their status changes at any time. You will also be notified of any new providers that have been added to the listings.

Each day you will automatically receive an email if the status of any of your selected providers changes, keeping you ahead of the curve. We will also advise you of any new providers that have been added to the listings.

Simply register here and then once you have your password, log in and select the providers that are on your PSL from the Approved Provider page.

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