The bitter pill of being forced to be a brolly

In the event of IR35 reform in the shape of the April 2017 off-payroll rules hitting the private sector, you could find yourself being forced down the umbrella company route, warns Lucy Smith, managing director of Contractor Umbrella.

If you’ve been towering outside IR35 through your limited company for some time, then ‘the way of the brolly’ is going to be a bitter pill to swallow. There’ll be a sourness because you’re not being given a choice, and a nasty aftertaste because of the less palatable, more taxing financial elements.    

But is there anything you can do, either to head off being strong-armed into a brolly or afterwards -- in terms of getting out of the grip of a company you never chose?

Start by doing due diligence

Firstly, be aware that many agencies do operate Preferred Supplier Lists (PSLs) for their choice of brollies they are prepared to engage with. This list, on its own, is not a bad thing. Many agencies put the brolly through a compliance check to ensure that both they and you are safe to engage with them with limited financial risks. So in essence, the agency should have done the ‘due diligence’ for you. However, that may not always be the case (as we have seen on occasions). So where does that leave you?

Well, regardless of what you’re told from the sales, ‘new business’ or another flashily-named team, always, always do your own due diligence on the umbrella company. Remember, ultimately, this company will be handling your money and managing your taxes for you. Get this wrong -- or don’t bother looking into them by running the basic checks -- and it could be a costly mistake. With HMRC too.

Once you’re strong-armed…

If you do have to use a brolly, as many contractors in the public sector were forced to do on the eve of the April 2017 off-payroll framework applying, what do you need to look out for?

Right away, check how long the company has been operating for. A good, long track record means they are likely to have had dealings with HMRC at some point in their lifetime, and if they are still standing, that has to be a good thing. Similarly, then check out their reputation online and listen to feedback from contractors who have used them.

And so begin your questions

Next, when dealing with the umbrella company on the phone or on email, make sure they can explain clearly and transparently how the business operates. Starter questions include;

You will be surprised at how many contractors approach us – and many other brollies -- with no clear understanding of the employment they had entered into.

Now move on to checking if they have any compliance audits. Simply, just ask to see the certificates. And yes, we all know that HMRC does not ‘approve’ any individual umbrella, but companies who are keen to show their compliance will spend the cash and go through the gruelling audit processes. Some contractors take extra reassurance from the fact that organisations such as the Association of Professional Staffing Companies and the Freelancer & Contractor Services Association check that their members are compliant with UK tax, employment and contract law.

Perhaps most importantly if you’re a new contractor-client, what is their customer service like? We all know how frustrating it can be when you cannot get hold of someone. And when it comes to your money, you need to know there is always someone there to help out or answer your queries. So:

  • Can you call them and speak to the same person every time?
  • If your point of contact is not around, can you speak to someone else who will be able to help you there and then?
  • Do they understand the industry and the legislation that surrounds it rather than just being a call centre?

Another vital question -- how and when will you get paid? Make sure you understand the processes; weekly, monthly invoicing and payment terms, such as holiday pay, statutory payments.

When you don’t like the umbrella’s answers

Some contractors will ask these questions (which we’d say should be part of any basic due diligence checking), and then won’t be happy with the responses they get. In this scenario – where you’re forced to use an umbrella company but don’t think it’s up to scratch, where do you stand?

If your dissatisfaction relates to issues like customer service or industry knowledge, then ask to speak with someone else at the brolly. If you still don’t get the response you need, go back to the agency and let them know. Ultimately, the agency needs to be aware so they can build a better working relationship -- for all parties.

If you discover that any of the umbrella companies recommended are offering a ‘scheme’ or ‘arrangement,’ then you must act. These schemes not only put you, the contractor, at risk of HMRC investigation and fines for any unpaid personal taxes, but they also now put the agency at risk.

In April 2014, the government introduced the Offshore Intermediaries Legislation which effectively transferred some PAYE liability to the agencies if they knowingly or carelessly recommend a ‘scheme.’ The changes that were implemented meant that the agencies are now liable for the National Insurance Contributions on the earnings of the worker. Employers NIC currently stand at 13.8% of the earnings over £162.00 per week and is uncapped. If an agency were to place just 10 contractors through a scheme with a £200 day rate for six months, their potential bill would be in excess of £24,000!

These changes also covered by the Agency Worker Regulations, passing responsibility to the agencies to operate the correct PAYE and NICs in the event that the end-client exercises ‘SDC’ over the worker. So it could be costly to the agency too, and a little reminder -- from you to them -- might therefore be worthwhile.

Getting tough

If your friendly reminders fall on deaf ears, consider that you also have the ability to report schemes direct to HMRC, as detailed in Spotlight 45 published by the Revenue on August 23rd 2018.

Faced with an agency that won’t reconsider their requirement for you to use a specific umbrella company, you are unfortunately left with only narrow options, which are likely to be far from what you’ll want.

1.Walk away from the assignment

This is usually not the ideal for most contractors.

2. Push to use a brolly of your choice

Any reputable brolly will normally be quite happy to speak with the agency and issue any compliance documents for their review.

3. Request compliance details from the agency on the brolly

Make this request before you proceed and be sure to keep that documentation to show you have done your ‘due diligence.’

If the worst happens

Should HMRC ever come calling, even with your due diligence done, you will be required to repay any unpaid personal taxes as these are deemed to be your liability. However if you keep any correspondence forcing your use of the agency’s chosen brolly, then at least you have a record of this for HMRC when they consider potential fines. So no ‘magic medicine’ for you, as such, but potentially some pain relief from penalties.

Editor’s Note: Related –

Contractors’ Questions: How to prove I’m not Supervised, Directed or Controlled?

Contractors’ Questions: Can brollies take unused expenses out of pay?

Contractors’ Questions: How to keep contracting if agency work is on hold?

Profile picture for user Lucy Smith

Written by Lucy Smith

Lucy has over 9 years extensive experience in the umbrella market, much of this time spent managing one of the most reputable umbrella companies in the market and now, Clarity Umbrella.
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