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How accountants might pivot under the new off-payroll rules

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Crawford Temple outlines the challenges that accountants are facing in the run up to the roll out of the new off payroll rules and how they can continue to service their contractor clients under the legislation.

1st Feb 2021
CEO Professional Passport
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6 April 2021 is a key date for accountants and their contracting clients. It is the date when the new off-payroll legislation comes into effect in the private sector, a year later than initially expected due to the global pandemic.  

The new tax rules will mean that medium and large sized hiring firms in the supply chain will become responsible for assessing a contractor’s employment status. And, faced with that responsibility, as played out in the public sector in April 2017, some hirers may opt to impose a blanket ban on hiring contractors working through their own personal service companies (PSC’s) and only hire them on an ‘employed for tax’ basis. 

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Replies (2)

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By Hugo Fair
01st Feb 2021 19:42

"Using a standard PAYE payroll solution will not deliver the correct calculations, or outputs, for an umbrella provider" ... is what a kinder person might call an unproven assertion!

I guess it partly depends on what you mean by a 'standard' Payroll (the cheap ones possibly don't have sufficient flexibility to be set up for your needs), but in general you'll only get incorrect results if you either enter incorrect data in the wrong place - or set-up the parameters of your system wrongly for your particular circumstances.

Like all PAYE scenarios, the processes for an umbrella organisation require the operator to have a good understanding of the relevant framework and regulations. All the good software solutions are capable of supporting these (and many other) processes - it is those running them that may need updated training (often available from the software suppliers).

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By GR
01st Feb 2021 20:21

I believe what Mr Temple is referring to is the actual reporting on the pay slip. The pay slips that these umbrella companies produce are highly detailed and can be two pages long. Many umbrella companies even produce a detailed guide for contractors to use to understand their pay slips.

The umbrella company pay slips that I have seen contain all sorts of details, e.g. a full reconciliation showing when the work was done/what time sheet was submitted/authorized, number of days worked and the amount of money that the umbrella company receives excluding VAT, the deductions the umbrella company makes (e.g. service charge/admin fee, employers pension, apprentice levy, employers NI, holiday pay, etc) and then you get the standard pay slip from whatever balance is left over. Without a full reconciliation and audit trial an umbrella company is unlikely to get the necessary accreditation and unlikely to pass the recruitment agency's compliance checks.

Without the proper specialist payroll software very costly mistakes could be made when calculating employer pension, apprentice levy, employers NI and holiday pay deductions based on the money the umbrella company receives.

Also, without the specialist payroll software an umbrella company owner would struggle to scale up and grow their umbrella business (as they would not be efficient). And the business model of umbrella businesses is high volume and low margin, and therefore achieving scale is essential.

I think the take home message from this article is that trying to setup an umbrella company from scratch without actually having the experience of working for one is likely to fail due to the costs involved and also due to the difficulty of getting the agencies to agree to use your new umbrella company that has no financial history. In fact, I would go as far to say that setting up a new umbrella company is much harder, more costly and more risky compared to setting up an accountancy firm.

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