Campaigns propose new rules to protect contractors from rogue umbrella companies
- Reference: 1621233009
- News link: https://www.theregister.co.uk/2021/05/17/campaigns_umbrella_firms/
- Source link:
With the introduction of new [1]IR35 rules , the UK has seen an upsurge in umbrella companies as employers and temp agencies seek to avoid directly employing contractors judged to fall within the tax law.
While many umbrella companies work well, James Poyser, CEO of inniAccounts and founder of campaigning website offpayroll.org.uk, said the flood of new contractors into umbrella companies was exacerbating problems with a largely self-regulating system.
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“There's lots of people now using umbrellas for the first time, 600,000 of people in the UK use them. It's an unregulated industry and the legislation for umbrella companies is really weak. There are parts of it where you get some protections but the other parts, it’s just open to the wolves, basically, and umbrella companies are very commercially driven organisations,” he told The Register .
New IR35 rules introduced last month require medium and large employers to assess whether contractors meet HMRC's definition of self-employment. The reforms made the businesses responsible for determining the tax status of contractors, rather than the contractors themselves, and many put in place blanket-ban policies for techies employed via their own personal service companies (PSCs).
Contractors judged to be inside IR35 under the new rules often end up employed by umbrella companies. Umbrella firms take the untaxed income from an employer or agency and run the payroll, hand over the taxes and national insurance to the UK's tax collection agency, HMRC, and pay the net pay to the contractor. Among the dubious practices employed by umbrella companies, which offpayroll.org.uk has seen evidence of, are attempts to impede holiday pay or entitlement and adding hidden fees to payslips.
Tricks of the intermediary firms
While umbrella companies are meant to hold back a percentage of pay in lieu of holiday pay, sometimes when the contractor leaves the company before the holiday is taken, or has not taken all the holiday before the end of the year, that payment is not returned to them or is carried over to the following year, Poyser said. Some umbrella firms even try to wait until they cannot be challenged for the pay within the law, he said.
"By law, umbrella companies have to repay any unused holiday pay, but some wait three months until they repay you, and then short-change you. And the reason why is because, after three months, the workers aren't entitled to go through the Employment Tribunal process directly: [Umbrella companies are] allowing themselves to operate outside the law," Poyser said.
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Another approach by some unscrupulous firms is to siphon off pay with hidden fees. "You might see one line that would say employment costs, and there are no details behind it. It might include national insurance and other things they have to take, but then if you run the numbers backwards, that number is too large... they're taking too much and they don't say what's going on," Poyser said.
As in holiday pay, the individual sums may not be much to an IT contractor on £500 a day. But they add up and point to how badly the system is working.
It was estimated in the [6]Labour Market Enforcement Strategy 2018/19 that £4.5bn is misappropriated mainly from workers but also from HMRC in the sector of employment agencies and intermediaries. For example, in 2016 a conservative estimate of the value of unpaid holiday pay to umbrella company workers was at least £1.8bn.
The proposals
Poyser has joined forces with Rebecca Seeley Harris, chair of the Employment Status Forum and a leading expert on employment and tax status, to submit a draft policy entitled "Umbrella companies - Call for Regulation" to Jesse Norman, the financial secretary to the Treasury, and Paul Scully, the Parliamentary under secretary of state in the Department for Business, Energy and Industrial Strategy.
The proposals are backed by Labour MP Ruth Cadbury and Liberal Democrat member of the House of Lords Matthew Taylor.
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The policy proposals include the appointment of a director of labour market enforcement as a matter of urgency and identifying whether to form a "Single Enforcement Body" or expand the remit of the Employment Agency Standards Inspectorate to oversee the regulation. They also include considering whether the umbrella companies and other intermediaries should be licensed.
Speaking to The Register , Seeley Harris said: "Workers have nowhere to turn at the moment. They have to go to an employment tribunal, they've got no government body to go to complain. There's nothing for the workers. The worker needs supporting, I know we need regulations, and maybe licensing... and perhaps we need HMRC to recover the holiday pay on their behalf.”
Andy Chamberlain, director of policy at IPSE, the Association of Independent Professionals and the Self-Employed, said: "We fully support the efforts made by Rebecca Seeley-Harris and James Poyser to draw attention to this issue. In the absence of an Employment Bill in the Queen's Speech; we would urge the government to look closely at the recommendations in their paper.
"The time for much tighter regulation of umbrella companies is long overdue. The [8]recent controversy over mini-umbrellas is the tip of the iceberg. While some umbrellas companies are entirely compliant, many others are not," he said.
The Department for Business, Energy & Industrial Strategy, which oversee UK employment law, has been contacted for comment and promised to provide a statement on Friday.
An HMRC spokesperson said its Our Fraud Investigation Service was using its civil and criminal powers to challenge those who are involved and facilitating the mini-umbrella company fraud "including recently deregistering more than 22,000 [Mini Umbrella Companies] MUCs who we believe are exploiting the VAT Flat Rate Scheme and removing their access to the Employment Allowance.
"We have also made a number of arrests in relation to MUC fraud and also taken steps to recover input tax in cases where it has established that a business in the supply chain knew, or should have known, that there was fraud," the spokesperson said. ®
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[1] https://www.theregister.com/2020/10/19/less_than_half_contractors_expect/
[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2YKI@w@T8WQlz7@X3lFYF4gAAAIc&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YKI@w@T8WQlz7@X3lFYF4gAAAIc&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YKI@w@T8WQlz7@X3lFYF4gAAAIc&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[5] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YKI@w@T8WQlz7@X3lFYF4gAAAIc&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[6] https://www.gov.uk/government/publications/labour-market-enforcement-strategy-2018-to-2019
[7] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YKI@w@T8WQlz7@X3lFYF4gAAAIc&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[8] https://www.bbc.co.uk/news/uk-57021128
[9] https://whitepapers.theregister.com/
Re: Wouldn't it be cheaper
This is an unintended consequence of ridiculous legislation and the cowardice of most Companies shying away from their legal responsibility of providing an accurate IR35 determination. Instead they use HMRCs non-legally compliant tool which places everyone (surprisingly) inside.
Eg, I had an appeal discussion with, er, ABC Systems regarding an inside determination, pointing out the actual legal position. Their response? Tough - we say you're in as its no comeback on us. The result? I move on, they still haven't filled the post 6 months on. Everyone loses but spineless upper management are happy as they perceive they have no risk.
Holiday pay
When I had to go ir35 for my current contract, I was told they would take a portion of the money I earned to account for holiday pay.
I told them to not do it and then if I took a holiday I would just not earn as much that week. As I have 6 months remaining and am planning on taking 3 week holiday (at least) I would end up owing them money.
I am quite capable of budgeting to account for this, and anyone who has been contracting for a while knows that they need to do the same.
Just my thoughts…
Re: Holiday pay
As the article says, some UCs are better than others. Where organizations only work with certain UCs then there's plenty of scope for sharp practice. Track and trace staff (~£10/hour) and care home agency staff (<£8/hour ) can't afford to lose their holiday pay.
'rolled up’ holiday pay
I have recently started with a big umbrella company and by default the holiday pay option on my profile was set to 'rolled up', with it being paid as it accrues as a separate item on your payslip. That means you won't get paid when you do take time off as it has already been paid out. You can opt for it being held and paid out when you take holiday if you so wish.
A better experience than the previous lot shower - never mind the holiday pay, they still owe me straight salary. I just went with what the agency recommended (big mistake) - took the path of least resistance as client was wanting me to convert over to IR35 with immediate effect - agency went under, and UC is saying it is not their problem that the funds didn't arrive.
Re: 'rolled up’ holiday pay
If you were an employee of an Umbrella Company, then surely they remain legally liable to pay your wages, and the fact that another party went under is irrelevant?
Re: 'rolled up’ holiday pay
Indeed, and, if that is the case, I would get debt collectors on them. I used one in the past (though that was for a direct client as outside of IR35) and it cost £2 for them to send a letter that got my money to me in a day (after three months of me fighting for it).
Re: 'rolled up’ holiday pay
Yep - but if you're on £8 an hour you can't afford to go to a tribunal or get a lawyer involved. Just having the time to do this might be a luxury to someone on minimum wage, never mind the money.
Re: 'rolled up’ holiday pay
The UC would be a creditor of the now defunct agency as far as the insolvency practitioner is concerned. The would probably get pennies on the pound once the wind up of the agency has been completed (a process that takes many months).
The problem is that we want the UCs to run on thin margins, exactly as this article is calling out.
It seems to me that if you want to have the UC to take out insurance for non-payment of a debt like the payment of invoices from an agent to cover your pay, you will have to be prepared for them to charge higher fees, as they don't get any income other than the fees they charge. There ain't no such thing as a free lunch.
I have some experience of this. I had some doubts about the financial state of one of the agents involved in my current assignment a while back, as they manipulated the payment terms to delay payment by a couple of weeks, which the UC agreed to (without asking me), and then for a couple of months missed their own payment deadline by as much as two weeks. One month, this resulted in me paying my mortgage late.
I considered this, and read up about it, and decided that if the money had left the primary agent, and had not left the secondary agent (try to avoid multiple agents, it always causes problems), then there was not a lot I could do about it, and precious little the UC could, either.
The umbrella was committed only to paying the money when they received it, which may strictly be against employment law, but was not against the Ts&Cs of my engagement (I know, statuary law trumps contract law, but you would have to argue the case). When I looked into it further, I found that I was actually being paid just above minimum wage, with the remainder being classed as commission, a rather dodgy (IMHO) practice which actually affects holiday pay, and the amount I would be legally entitled to if there ever was a dispute. And this is one of the big umbrellas.
Wouldn't it be cheaper
simply just to abolish IR35 ?