The world of work has radically changed over the last 40 years. Gone are the days of the 9-5 as we have seen a significant rise in the number of people opting to work for themselves as freelancers and contractors. And, along with the prominence of the contingent workforce has come a proliferation of regulation and legislation as policymakers seek to catch up with the fast-moving pace of the modern working landscape.
A catalogue of legislation has resulted in a series of unintended consequences and much of it has not served to help and support the contracting sector and the whole supply chain for the better. Government has ignored advice and recommendations from stakeholders and industry experts so that the legislation continues to fail to address the underlying issues and challenges that our industry faces, namely non-compliance, transparency and enforcement.
- Non-compliance: In a market where all providers should be providing similar returns to workers, as they should all operate within the same tax rules, competition should be on business strength and service levels, unfortunately this is not the case. Non-compliance is fuelled by the complexity of the legislation coupled with a desire for workers to achieve the highest rewards for their efforts. Competition across the sector is driven by the final returns provided to workers and workers select providers on this basis
- Transparency: The levels of complexity and frequent changes to legislation have resulted in workers bouncing from one structure to another. The latest changes, Off-Payroll working, have resulted in many workers operating through a new structure to them, the umbrella company. There are many examples where workers clearly do not understand the arrangements and therefore additional levels of transparency are required to aid the understanding.
- Enforcement: The current enforcement strategies do not work. They serve to incentivise non-compliant offerings and fail to support the compliant parts of the sector. The lack of visible enforcement, the lengthy delays in taking any action, and targeting the workers for recovery all serve the interests of those seeking to circumvent, or disregard, the rules.
Crucially, the only way to stop the perpetual cycle of legislation is a radical rethink and simplification of the rules.
The forces and drivers that applied back in the late 1990s are very different today. Contracting and flexible working is now formally part of a company’s structure and no longer seen as a way of reducing costs. Contractors provide the flexibility and agility that the modern business needs to survive and thrive. Recent media headlines have shone a bright light on some malpractice in the sector which is serving to give the whole umbrella industry a bad name and for too long, Government’s inactivity has helped fuel the bad practice.
The following short-term solutions could help to level the playing field and help provide a stable foundation on which to build upon:
Proactive use of existing data: HMRC should develop a tool that integrates the intermediary reporting data against the RTI data to highlight potential disguised remuneration schemes. HMRC should also consider developing this tool to allow authorised users to interrogate the data within set parameters. The tool could be built to compare and highlight trends to better inform the enforcement picture.
HMRC Umbrella Pay Calculator: HMRC should develop a calculator hosted on .gov website so that checks can be made by workers with the output providing a detailed breakdown of all costs, including employment costs. This would afford HMRC the chance to highlight common areas where disguised remuneration or other hidden costs could be found. The illustrator could include a reporting function for users to report any anomalies when matched with HMRC’s illustration. This would provide valuable intelligence to help inform enforcement.
HMRC Umbrella Payslip Checker: In developing the calculator it would be relatively simple to add an umbrella payslip checker so that the workers’ payslip data could be checked for accuracy and any concerns could be reported to HMRC. It would also provide an opportunity for HMRC to promote the Personal Tax Account which serves to validate the payslip information. Again, it will help to marginalise the providers where false payslips are being produced.
Benchmarked PAYE rate: All roles advertised, where the rate offered is not PAYE, should use a set formula to create a benchmarked PAYE rate that must also be shown. This allows a worker a common currency when assessing the true value of roles.
Status Indicator: To assess any assignment, contractors must understand its Off-Payroll status as well as Supervision, Direction and Control. Whilst the status can only be finalised once the worker has been considered, this should indicate a provisional status. In many instances, the workers input is unlikely to alter the outcome.
Collegiate work with sector bodies: HMRC, BEIS and EASI should build closer relationships with compliance bodies and the wider sector. Compliance bodies set their own compliance standards and a more structured approach would allow the departments to inform and be informed on pressure points in the market. Compliance accreditations allows faster reactions to market distortions and would help limit and restrict market access to non-compliant ‘have I got a good idea for you’ schemes.
Protecting the integrity of the compliance reviews: With compliance accepted as a crucial component of the supply chain it is important that reviews are of the highest standards. HMRC should seek ways to work with compliance providers and utilise the intermediary reporting versus RTI returns comparison tool to provide a further level of validity to compliance reviews. It would provide a significant barrier to entry for non-compliant offerings.
The last three decades have thrown up many challenges for the sector so it is now more important than ever that the everyone in the compliant supply chain along with policymakers takes a collegiate approach to work together so that we can confidently face the future with our heads held high, knowing that we are striving to do the best for the whole industry to raise standards and drive out those who seek to perpetually break the rules and behave unethically.
Crawford Temple is the CEO and founder of Professional Passport which is the largest independent assessor of provider compliance in the UK. Established in 2007, Professional Passport provides an independent compliance standard for the payment intermediaries market in an attempt to create a more level playing field across the sector and provide a positive differentiation for those providers operating in line with those standards.