If your business utilises contractors, then there’s a chance that you’ll have dealings with umbrella companies, especially in the wake of the new IR35 rules. Last week, we discussed the risks posed by engaging with non-compliant umbrella companies, including HMRC penalties and severe reputational damage.
In order to avoid these unwanted outcomes, here are several steps, including some recommended by the government, that businesses can take to make sure they do not engage with non-compliant umbrella companies.
Ensure you and your employees know the rules
If your company uses contract or temporary workers, then the best way to avoid entanglement with non-compliant companies is simply to read up on the rules and understand your responsibilities. Consulting with legal experts and frequently checking the latest government updates are both strongly advised.
Employees should also be aware of the risks that come with working with non-compliant umbrella companies. Provide regular training for staff so that they are up to speed on the rules and know the warning signs of non-compliance.
Vet your supply chain and contracts
Strict due diligence on the companies within your supply chain and, of course, any umbrella companies you work with is also crucial in avoiding non-compliance. It is vital to closely review any contracts you have with umbrella companies to ensure compliance.
The government recommends asking umbrella companies for example payslips and evidence concerning PAYE returns. It also recommends asking directors for indemnity against tax liabilities “if they do not operate PAYE on the full amount received by the worker” and asking the umbrella to seek authorisation if they intend to sub-contract to a third party.
Due diligence doesn’t necessarily end once you’ve engaged with an umbrella company. Regular reviews of your Preferred Supplier List (PSL) are highly recommended to check that umbrella companies you work with remain compliant. You can also ensure compliance on a continuous basis by carefully checking each payslip to make sure the correct NICs and tax are being paid to HMRC.
Be wary of warning signs
When engaging with an umbrella company, there are several warning signs of potential non-compliance to look out for. For example, if an umbrella company is based offshore then proceed cautiously, as they may be operating a tax avoidance scheme.
Similarly, if an umbrella company is offering workers financial incentives then this is also something to be wary of. While umbrella companies often offer attractive perks to contractors, if these seem too good to be true then the likelihood is that they are.
There are several ways to check an umbrella company’s reliability, for instance, by looking them up on Companies House to check that they have a solid trading history and that their directors are UK-based, or by only using umbrella companies with accreditation from a professional body, such as the FCSA.
Report non-compliance
Finally you should immediately report any non-compliance you come across directly to HMRC. This will not only help your company remain compliant, but potentially protect other businesses and contractors too
Author: Steven English
29.10.2021
