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Knowing your supply chain post IR35 reform

Given the current climate and a raft of media exposure around ethics, exploitation and non-compliance in the recruitment and contingent workforce industry, it has never been more important that everyone in the supply chain works together to develop good working practices.

There have been cases of bad practice among a minority of businesses that have grabbed the headlines but there are also a large number of highly compliant organisations working ethically and correctly to provide a high-level quality service for clients and contractors.

Knowing who you are working with and knowing that your supply chain is operating compliantly is not to be ignored.

Getting IR35 compliance right:

IR35 regs highlight need to clarify employment status

How HR can make the most of the new IR35 rules

Off-payroll review launched

The new off-payroll reforms that came into effect in the private sector in April 2021 now mean that the end-hirer becomes responsible for assessing a contractor’s IR35 status.

It has also led to an increasing number of contractors working through umbrella firms. And some of those are not what they purport to be. In reality, they are tax avoidance schemes duping unwitting contractors into signing up for them, often with the promise of more take home pay.  

And, HMRC is simply not clamping down on the dodgy schemes fast enough or concertedly enough, despite having the relevant data and information to help it identify such schemes. However, HMRC has become more active in sending out tax avoidance warning letters to workers suggesting they may be in a disguised remuneration or tax avoidance scheme.

In some ways, this is good news. But we believe that HMRC’s focus to pursue workers is the wrong strategy and simply serves to incentivise the promoters of these arrangements. HMRC should be chasing up the tax recovery from the promoters, not the innocent workers.

Faced with a proliferation of non-compliant schemes it has never been more important that hiring firms get to know their partners throughout the supply chain.

There are a number of steps to take to check the credibility and compliance of other parties in the supply chain and you can add specific requirements to your contracts with your recruiters so that you secure assurances and reassurances.

You can start by checking out your recruiters. Are they in a good financial position? At the very least you should be running a credit check, and you should also investigate their accounts. If independently audited then you can feel reassured that the figures given are true. You should also check for issues such as conflicting business interests, previously failed businesses, financial difficulties and offshore connections. 

You will also want to check recruiter's contracts of employment (umbrella), insurances and levels of cover. You are well within your rights to request to see a copy of their insurance certificates, VAT certificate and certificate of incorporation.

Don’t forget you are trusting your partners with large sums of money, so you will need to be assured that they are genuine and have appropriate cover in place. And ask your recruiters to confirm the names of the intermediaries they work with and run similar checks on those.

Such an audit would identify a high-risk provider, one more likely to be a disguised remuneration scheme where malpractice and unethical behaviour is occurring, a medium risk provider, where there is no evidence of non-compliance but no evidence that their services have been verified either, and a low-risk umbrella provider, one which holds a recognised compliance accreditation certificate and is unlikely to pose any sort of threat to the supply chain.

An increasing number of recruiters work only with approved providers, but it is important that end-clients do their own checks and put processes in place to ascertain compliance.

Compliant umbrella firms offer a legitimate contractor management solution that gives individuals all the benefits of employment while working on a variety of assignments. Good umbrella firms are open and transparent in their dealings with workers and provide a clear contract of employment that explains how they will be paid, what deductions there will be and for what, how their expenses are paid and how their holiday pay is worked out.

Open transparent communication is key throughout the supply chain and end-clients must educate themselves about how umbrellas work so that they can feel assured that they are part of a compliant chain.

Hirers must have honest conversations with their recruiters and ask key questions and understand the warning signs and what to avoid when looking at the providers in the market. 

The importance of implementing effective compliance processes cannot be overstated. Non-compliance does not pay and could be costly in the long run.


By Crawford Temple, CEO of Professional Passport