As the extension of the IR35 public sector rules slowly unfolds, one option being considered is to switch contractors to engagement through umbrella companies where the new rules will apply.
“This is certainly an option which has advantages”, says Adrian Marlowe, MD of the recruitment law specialist Lawspeed. “However attractive this may be, the downsides should also be considered, one of which is risk. Historically tax and regulatory compliance risk has been associated with these arrangements.”
Earlier this year Lawspeed launched its Service Provider Accreditation (SPA) for umbrella companies, to identify suitable safe umbrella businesses for agencies to work with. Marlowe explained “Accreditation follows an independent audit against standards relevant to a broader regulatory spectrum, for example including GDPR and AWR compliance, which will be key when considering using any umbrella. Tax liability for agencies and their directors is high on the security agenda, as is the risk of competition from umbrella group businesses, although the competition element is often below the radar.”
Some umbrellas have simple employment only operations, but a number of larger businesses now operate within groups that offer alternative accountancy and direct hire arrangements. Marlowe continued “The latter potentially lack transparency as the use of group names can confuse the arrangements on offer, with information being passed within the group from one group business to another. This could mean that as well as creating unnecessary tax risk exposure for the agency, contractors referred to a group business by an agency may end up later supplied by another member of the group that services hirers directly, so cutting out the agency with resultant loss of resource and fees. Genuine transparency is therefore essential”.
“I am delighted to say that on approaching a sample of agencies, all indicated strong support for SPA” continued Marlowe. “This is because as well as being run by professional lawyers, SPA is independent, covers both tax as well as commercial risk, identifies individual safe companies avoiding use of group names. It validates genuine compliance and low risk in all the relevant areas, and is designed specifically to provide agencies and contractors with the transparency, information, comfort and security they need. Use of the easily distinguishable SPA logo also provides the umbrella company with a clear kite mark for their own marketing purposes. Despite the marketing provided by some trade associations, this simply does not exist elsewhere.”
John Shipman, director of Military Medical Recruitment said “The last 12 months has seen a significant rise in the number of rogue umbrellas operating within the marketplace, whose questionable products (loan, annuity and marketing schemes) put agencies at risk in terms of HMRC liability and debt transfer. The SPA Accreditation, based on a wide audit of issues, gives us the peace of mind we need.”
Marlowe concluded, “Whatever your relationship, no one sensibly wants to recommend a contractor to a competitor or a business that could expose them to regulatory or tax risk. SPA standards are designed to exclude rogue or competing business whilst provide comfort for agencies and contractors in these critical areas.”
Information about Lawspeed – fully insured independent professional law firm, UK specialists in recruitment and employment law. See more.
Company operating in recruitment sector – 22 years
Accreditation – ISO 9001: 2015 including for auditing.