Revenue is right to clear up what a 'compliant' umbrella is

Not to be outdone by their PSC counterparts who got the taxman’s help to bust a myth, the record has also been set straight for umbrella contractors, as HMRC has thankfully cleared up what a ‘compliant’ umbrella company is, writes Lisa Keeble of ContractorUmbrella.  

For at least the last few years, there have been many fierce debates between industry professionals as to what would constitute a ‘compliant’ umbrella, what it’s ‘look and feel’ is and what it isn't. Even certain parties outside of contracting have stuck their oar in.

Thanks to a new manual produced with input from HM Revenue & Customs, these debates – and intrusions - should now, finally, be at an end.

The manual outlines exactly what umbrella and contractor payroll providers should be doing, in practical and financial terms, in order to comply with the tax authority’s regulations. In it, HMRC confirms what requirements are necessary in order for a contract of employment to be “truly” over-arching – guidance that anyone familiar with the Reed case will tell you is going to be very welcome. It follows that there’s an official view on Mutuality of Obligation, pay between assignments and statutory employment rights.

Readers of the manual, which All Umbrella Companies Are Equal (AUCAE) have authored in collaboration with HMRC, are reminded that all PAYE umbrella companies in the UK should no longer be operating so-called ‘Rolled Up Holiday Pay.’ As a result, all umbrellas should be allowing for the provision of pay when holiday is taken. This is just one of a number of areas central to running an umbrella company in a lawful way that is detailed in the manual, and that contractors using such employers could do with being aware of, especially if they’ve just joined a new one.

Moreover, the guidance within it provides a definitive standard that all AUCAE umbrella member companies will adopt. That’s a positive for contractors (and recruiters), as it means that almost one-third of the UK’s umbrella company market is now going to be adhering to HMRC’s most up-to-date guidance. With what appears to be an influx of new payroll providers in the contracting space, this compliance manual couldn’t have come at a better time.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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