Beware of non-compliant payroll

We’re not long in to the new IR35 extension to the private sector and it is fair to say that the spotlight is firmly trained on the umbrella sector. In recent weeks most of the recruitment news outlets and in fact national media have picked up on the latest HMRC update around Mini Umbrellas, with both the BBC and the Guardian revealing cases of unwitting NHS Contractors duped into working via non-compliant mini umbrellas.

If you are a business that uses temporary labour, you should be aware of the potential dangers of mini umbrella company fraud in your labour supply chain.
https://www.gov.uk/guidance/mini-umbrella-company-fraud

So, what is a mini umbrella and why is it not compliant?

A mini umbrella is a ltd company set up to employ a small number of temporary workers (contractors) to enable fraud. The operators of these mini umbrellas will usually set up hundreds of these small companies to house a handful of contractors to take advantage of two government incentives designed specifically to help small businesses – the VAT Flat Rate Scheme and the Employment Allowance. Take for example the Employment Allowance, which offers eligible businesses relief of up to £4k per year on Class 1 National Insurance contributions. Times that by 50 mini umbrella companies and it’s a considerable saving!

https://www.gov.uk/vat-flat-rate-scheme

https://www.gov.uk/claim-employment-allowance

Know your supply chain

It was only a few months ago that HMRC agreed that as a result of public sector IR35 reforms in 2017 the number of non-compliant Umbrella schemes including mini umbrellas increased dramatically. It was an opportunity for unscrupulous individuals to take advantage of contractors. And here we are again, with IR35 now applied to the private sector it’s vital to understand every process in your supply chain to ensure the safety of your contractors and your business.

The landscape is full of warning signs for agencies and businesses. Things like IR35, the Criminal Finances Act, The Taylor Review and the HMRC Taskforce to name just a few. No longer can you turn a blind eye to any piece of your supply chain. It could come back to bite you.

HMRCs recent publication Applying Supply Chain Due Diligence is clear on the potential penalties:

  • You may be liable for unpaid taxes and National Insurance contributions
  • National Minimum and National Living Wage and falsified payment records (Arrears + 200% fine)
  • Corporate failure to prevent the criminal facilitation of tax evasion (Unlimited fines)
  • Your business could be prevented from operating entirely
  • Your risk of reputational damage (E.g. BBC Article G4S and HR GO)

Read the full publication here:
https://www.gov.uk/government/publications/use-of-labour-providers/advice-on-applying-supply-chain-due-diligence-principles-to-assure-your-labour-supply-chains 

Umbrella regulation

So, what is the government doing about mini umbrellas and improving industry regulation?

The Umbrella regulation debate has been rumbling around for years, with calls for more transparency and better regulation to prevent schemes like the mini umbrellas and the Loan charge tragedy we’ve seen recently.

Following the Taylor Review into modern Working Practices 2017 the government had pledged to better regulate the umbrella sector, widening the scope of the Employment Agencies Inspectorate to cover this area. That has not happened to date.

However, the pressure is mounting for government to act.

Speaking in parliament on 24 May about amendments to the finance bill, including proposals to ‘curb or kill’ umbrella companies, David Davis’ MP speech ended with a hard-hitting call to action:

“The Treasury and HMRC’s confused approach to the whole sector enabled the shameful loan charge scandal with thousands of people in financial ruin, families torn apart and seven people so trapped that they tragically ended their own lives. Failure to act on the mis-selling and illegitimate operation of umbrella schemes risks another scandal on a similar scale. That cannot be allowed to happen. We have a duty to act. Just as our key workers have protected us over the past year, it is time we started protecting them.”

Finally, it seems that the government are on-board in their understanding of the need to regulate the Umbrella industry to protect People’s livelihoods and in some cases even lives.

We understand that 3000 new enforcement officers have been recruited and one thing’s for sure, there’s a big hole in the national finances which the government need to recoup. 

Look for safe alternatives

Of course, it’s not all bad news. For every bad apple there are 50 good ones.

Here at People Group we’re one of the latter. We’ve driven new standards of compliance within the intermediary sector for the past 15 years, never compromising on our values of trust and transparency.

If you have any doubts about elements of your payroll and compliance supply chain or processes, we recommend reviewing them as soon as possible. As industry experts we provide a complete range of 100% compliant payroll and compliance solutions tailored to fit the needs of our clients.

For a totally free, no obligation review of your payroll and/or compliance processing or to discuss your options get in touch today.

LET’S TALK