Agency News:

Umbrella news for agencies and recruiters

With HMRC focusing on 'non-compliant' operators, it's never been more important to work with a compliant partner. Gabem's recent re-structuring made sure that compliance continues to be at the forefront of operations-lifting the worry from agencies and end-clients.

In the 2008 Pre-Budget Report, the Government expressed concern about providers of umbrella and other payroll services that fail to comply with legislation. HMRC made clear its intention to step up compliance visits, to litigate where appropriate, and where successful, to recover the PAYE and NI debt. If the defendant is unable to pay, the risk may be passed on (through the transfer of debt provisions) to third parties, including providers of such companies, their associates, and others who have encouraged, facilitated or otherwise been involved in the process.

In Gabem's view, the reputation of the industry is tarnished by unscrupulous providers that exploit workers through dubious practices-for example by failing to deduct correct tax on their behalf, abusing expense dispensations, or operating off-shore. Enforcing compliance can only serve to raise the professional level of the industry, since such companies put their contractors and agencies at risk. However, it also means that contractors and agencies must be confident that their supply chain is compliant.

When the time was right to widen our offerings last year, not only did we work through every element of the new structure with professional advisers, but we also invited specialists from HMRC to review our policies, processes and procedures on site. They complimented us on the robustness of our expenses system, which in turn provides our clients with confidence that our offerings are compliant.

Keeping agencies 'safe'

There is a duty of care on agencies to assure themselves that their providers comply with legislation. In the current economic climate, using a compliant umbrella company also helps agencies manage cost and risk.

With the Gabem Umbrella, agencies can be secure in the knowledge that Gabem assumes all employer responsibilities for the employees, including tax, NIC, SSP,maternity and paternity entitlements. and other considerations such as working time directives. There are also potential financial savings for agencies in the areas of Employers NIC and Holiday Pay.

For self-employed workers, Gabem validates the individual's UTR (unique tax reference) with HMRC. But the ability to be self-employed depends on the nature of the work assignment, not the preference of the worker. By discussing each assignment with each individual, we help them decide whether or not they meet the self-employed criteria. This helps protect the individual, but also safeguards the agency-if HMRC were to successfully challenge and deem the worker to be employed, then any liability resides with Gabem and cannot transfer to the agency.

Agencies are precluded from subcontracting directly with self-employed individuals, so workers who are genuinely in business on their own account must either use a provider like Gabem, or set up their own limited company, if the agency wishes them to take on work. The agency would not be at risk if challenged about the individual's self-employed status, because it would be Gabem's responsibility.

Contracts in place

An added advantage with Gabem is that individuals who cannot meet the self-employment criteria can opt to work through the Umbrella option.

With the Umbrella, there is an overarching contract of employment in place between Gabem Management Limited (GML) and the individual worker. This is to ensure that the individual is legally recognised as an employee at all times (not only whilst actively involved on a particular assignment). This is a technical issue, but if the relationship were regarded in law as a series of individual contracts rather than a single overarching one, then the worker would not benefit from being able to claim certain expenses.

For those who meet the self-employed criteria for an assignment, Gabem ensures that it signs a contract for services with the individual, who then legally becomes Gabem's 'sub-contractor'.

The 'expenses' hoodwink in Umbrellas

In the Pre Budget Report, an area that HMRC earmarked for crackdown is the abuse of expenses 'dispensations'. Some umbrella providers allow employees to claim expenses up to a certain amount without receipts, whether or not these expenses have been incurred, simply because they have a dispensation. But even where providers genuinely have such dispensations, they still have a due-diligence obligation, plus a duty of care to their employees, to ensure that an expense has actually been incurred.

The dispensation is actually between the provider and HMRC, and exists to reduce administration; but does not remove the obligation to validate expenses. If challenged and shown to have allowed such misuse, the provider would be liable for additional tax and NI. Employees hoodwinked in this way would also be liable for additional tax and NI on any 'benefits in kind'. If investigated by HMRC, they must be able to prove that expenses claimed were legitimately incurred, so at least they should keep their own records and receipts. There will be no such expenses abuse in Gabem because we insist on original receipts for all reimbursed expenses (however big or small), and check them thoroughly.

Three safe options...

Our market-leading Gabem Umbrella is aimed at temporary or contract workers who are not considered self-employed, or who want the easiest, most hassle-free payment service available. They become employees of GML with full employee rights, including tax relief on work-related expenses, plus access to insurances and other benefits such as pensions.

• Individuals are employees (not directors or shareholders)

• We ensure that the appropriate Employer and Employee NI and PAYE tax is remitted to HMRC

• Employees are generally better off than being on the payroll of the end-user only for the duration of the specific assignment as they can offset legitimate expenses related to their work against tax, so more money is paid into their account.

Our two self-employed options are Gabem CIS, for those in the construction industry, and Gabem Solo for all other self-employed workers. These offer a safe solution in this complex area where self-employed status needs to be determined on an assignment-by-assignment basis. Both offer legitimate self-employed contractors the benefits of lower tax, and the ability to offset legitimate expenses against tax at the end of the tax year.

• Gabem discusses each assignment with the individual to advise on their employment status and makes sure the correct contractual documentation is in place for the applicable option

• If the contractor is self-employed for the assignment, they will contract using Gabem CIS (for construction assignments) or Gabem Solo (for any other types of assignment)

• Under CIS, Gabem will deduct 20% tax on account. Contractors are responsible for making their own provision for paying class 2 NIC and any additional class 4 NIC at the end of the tax year. However, because tax on account is deducted weekly, it is possible there will be little or no additional tax to pay after allowable expenses have been taken into account

• Under Solo, the process is as for CIS except no tax on account is deducted, so the contractor must make provision for paying all necessary tax and NI at the end of the tax year.

Checking employment status

The following is an extract from HMRC's website:

In most cases your employment status will be straightforward. In general terms, you are employed if you work for someone and don't have the risks of running the business. You are self-employed if you are in business for yourself and are responsible for the success or failure of that business.

To help you check your employment status, answer the following questions. These also apply if you are a casual or part-time worker. If you have more than one job the same questions apply for each job.

Employed - if you answer YES to MOST of these questions you are likely to be employed:

• Do you have to do the work yourself?

• Can someone tell you where to work, when to work, how to work or what to do?

• Can someone move you from task to task?

• Do you have to work a set number of hours?

• Are you paid a regular wage or salary?

• Can you get overtime pay or bonus payments?

• Are you responsible for managing anyone else engaged by the person or company that you are working for?

Self-employed - if you answer YES to ONE OR MORE of these questions you are likely to be self-employed.

• Can you hire someone to do the work, or take on helpers at your own expense?

• Can you decide where to provide the services of the job, when to work, how to work and what to do?

• Can you make a loss as well as a profit?

• Do you agree to do a job for a fixed price regardless of how long the job may take?

If you can't answer yes to any of the above questions, you are still likely to be self-employed if you can answer yes to most of the following questions.

• Do you risk your own money?

• Do you provide the main items of equipment (not the tools that many employees provide for themselves) needed to do the job?

• Do you regularly work for a number of different people and require business set up in order to do so?

• Do you have to correct unsatisfactory work in your own time and at your own expense?