03 Jan Compliance Essentials: A Handbook for Contractors and Recruitment Agencies
If you look back at all our blogs over the last 12 months one common theme runs through them all – the importance of compliance. Here we break down compliance essentials for contractors and recruiters and remind you of how vital it is in all your dealings with umbrella companies.
IR35
Since its introduction in 2021, IR35 has faced criticism from umbrella industry leaders, recruiters, contractors and end-clients alike. Before 2021 it was the contractor’s own responsibility to prove their employment status, but when the rules were changed it became the end client’s. It was supposed to simplify the process of determining a contractor’s employment status – whether they’re ‘off-payroll’ or traditionally employed – to ensure a fair tax regime, but the Government’s own Check Employment Status for Tax (CEST) has led to some conflicting determinations resulting in unnecessary complications for everyone involved.
The penalties for getting a status determination wrong are severe and include the end-client having to pay back all of the tax that HMRC says was unpaid, as well as the full amount of National Insurance Contributions and the amount designated for the Apprenticeship Levy, plus financial penalties in the form of fines. We discussed what contractors can do if CEST gives them an incorrect determination here. Of course, the simplest way to ensure that a CEST determination doesn’t affect you as a contractor, or your end client, is to partner with a compliant umbrella company that not only looks after your best interests but can also offer advice and information if you need it.
AWR
The Agency Workers Regulations (AWR) came into force in 2011, giving contractors the same employment rights as ‘traditionally-employed’ people and is designed to avoid discrimination against contractors in the workplace.
It gives contractors the following rights from day one of their assignment:
- Equal access to facilities such as a canteen, a staffroom, toilets and showers, car parking, crèches and transport
- Information about vacancies within the workplace and the right to apply for them
After twelve weeks of continual employment with the end client, the contractor also has the right to:
- Equal treatment in respect to pay, working hours and holiday entitlement
- Enhanced rights if they are pregnant
It’s a measure of how compliant your umbrella company is as to whether they strictly enforce the AWR, and here at i4, we work hard in collaboration with our recruitment partners to ensure that all the rules are upheld and that the wellbeing of our contractors is paramount.
Tax Regulations
HMRC takes tax avoidance very seriously and sets out severe penalties for recruiters, contractors and umbrella companies that flout the rules. It is particularly zealous about non-compliant umbrella companies’ tax avoidance schemes that involve disguised remuneration (promises of ‘higher than usual’ take-home pay, loans, credit facilities, grants, salary advances etc). This results in less tax being paid into the system and has the potential for financial penalties for contractors and fines and reputational damage for recruiters.
We condemn such behaviour, not least because it’s the contractor and our recruitment partners who suffer most from unscrupulous umbrella companies’ activities, but also because it brings the industry’s reputation into disrepute. That’s why we’re proud to be full members of the Freelancer and Contractor Services Association (FCSA) the UK’s leading membership body for umbrella employers, contractor accountants and CIS payroll services providers. Our reputation is our guarantee that we’ll comply with all tax and NI legislation, and update our products and processes whenever there’s a change in the rules. Since 2005 we’ve helped almost 40,000 contractors maximise their pay in a compliant manner, and have partnered with over 11,500 recruitment agencies to ensure that their businesses stay on the right side of the law.
Compliance isn’t a matter of choice, it’s a legal requirement, and one designed to benefit us all as well as protect hard-working contractors and recruiters – that’s why we work hard to uphold the most stringent standards. If you need any advice or information about staying compliant, whether you’re a recruiter or a contractor, you can call us on 0800 084 3058, email us at help@i4services.uk or fill in the contact form here.