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Off-payroll changes and umbrella firms

The clock is ticking and the countdown to April 2021 has begun, we are just months away from the 6 April, which heralds the arrival of the off-payroll tax rules in the private sector.  Courtesy of Covid-19, we have already had a one year delay, which some may argue has given those impacted more time to prepare. 

Many professional accountancy businesses have a significant number of contractor clients operating through their own Personal Service Company (PSC), for whom they provide an accountancy service. 

Now, with the looming changes to legislation and the likelihood that many of these PSC contractors will be forced or encouraged to work through an umbrella firm, many accountancy businesses are now exploring the feasibility of setting up their own umbrella arm to service those contractors.

At first glance, the operation of an umbrella company can appear simple and straightforward with many seeing this 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.

These are the four key areas that are often overlooked.

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Contracts

The employment contract operated by an umbrella company is not a standard employment contract and has a significant number of nuances essential for an umbrella company to protect itself.  

Whilst many companies claim to be able to offer these contracts, we know that there are some companies that have spent significant amounts of money only to discover that their contractors fall short of the required standards.  Seek legal advice to understand the correct contractual terms.

Insurances

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.

Payroll

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.

Expenses

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.

Finding business

Establishing good relationships with recruitment firms is key 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, I would recommend speaking 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.

 

Byline by Crawford Temple, CEO and founder of Professional Passport. 

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