How accountants might pivot under the new off-payroll rules
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.
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.
Should a client determine that a role is ‘inside IR35’, a contractor could then be urged to work through an umbrella model.
Many professional accountancy businesses have a significant number of contractor clients operating through their own PSC’s, for whom they provide an accountancy service. Now, with the incoming changes to legislation, it is likely that many of these PSC contractors will be forced or encouraged to work through an umbrella firm. As a result, many accountancy firms are exploring the feasibility of setting up their own umbrella arm to service those contractors.
Operating an umbrella company can appear simple and straightforward with many seeing an umbrella model as operating in a similar way to that of a payroll service. It is not and it is important that the structure is compliant and correct from the outset.
The four key areas most often misunderstood:
The employment contract operated by an umbrella company is not a standard one and has a significant number of nuances included that act as essential protective mechanisms.Whilst many companies claim to be able to offer these contracts, we know of companies that have spent significant amounts of money only to discover later that their contractors fall short of the required standards. The message is clear; seek legal advice to understand the correct contractual terms.
The range of insurances required by an umbrella is standard; what is not standard is the range of occupations and roles that need to be covered. Obtaining insurance from a general broker, as opposed to a specialist in the umbrella market, could mean that your insurance policies will not cover any claims that arise.
Using a standard PAYE payroll solution will not deliver the correct calculations, or outputs, for an umbrella provider. When standard payroll software is used, it can significantly increase the risk of an employment tribunal and an award being made over employment costs that would significantly outstrip any charges made for the service. There are a number of specialist payroll providers in the market for umbrella providers to choose from.
There are specific rules when it comes to expenses for umbrella workers that differ from the standard expenses applicable to employers and their employees. It is essential that these are fully understood as errors could result in liabilities that could be passed down to directors as personal liabilities.
Establishing good relationships with recruitment firms is crucial to the success of your umbrella firm and nowadays, many recruiters have a preferred supplier list of umbrella firms they work with. Many now require an umbrella company to hold a compliance accreditation and some may have their own financial underwriting requirements which would be difficult for a new umbrella to satisfy.
Before spending money on contracts and legal advice, speak to the agencies that your current contractors work through to establish what they need from you in order to be able to work with you in your guise as an umbrella company.
This will give you the opportunity to explore the potential and possibilities before incurring any financial costs. You will then be better placed to navigate the umbrella path smoothly and be able to continue to provide a service to your contractor clients when the new rules take effect.