In May 2012 HMR&C published new guidelines for contractors to help them determine their status under IR35 but it seems as though they have raised more questions than they have answered.

HMRC have decided that their approach to IR35 should be risk-based and the questions that they have devised will be used to determine whether a PSC (Personal Service Company) is low, medium or high risk. Obviously those that are considered to be high risk will be the most likely to have an IR35 review.

HMRC have also stated that they will be writing to those people that they feel IR35 may apply to and be asking them whether or not the have considered their position. If they receive the reply that the person believes themselves to be outside IR35 HMRC will then ask them to prove it by producing evidence. If you fall under the medium or high risk categories there is a risk of an IR35 review and HMRC have emphasised that ‘this risk is not low’

Although the new business entity tests will be used to determine how the business operates overall, each individual engagement will need to be considered in terms of IR35. There are 12 tests in all and they ask at least one question for each of the following categories and points are awarded according to your answers:

Business premises – do you own or rent premises that are separate from your home?
PII – do you have Professional Indemnity Insurance?
Efficiency – has your business had the opportunity in the last 24 months to increase business income by working more efficiently?
Assistance – do you engage workers who bring in at least 25% of your turnover?
Advertising – do you spend at least £1200 per year on advertising?
Previous PAYE – have you worked, as a PAYE employee, for your current client within the last 12 months? (If you answer yes, you will score minus 15 points)
Business plan – do you have a business plan with a regularly updated cash flow forecast?
Repair at own expense – would your business have to bear the cost of having to put right any mistakes?
Client risk – has your business failed to recover payment of more than 10% of turnover in the last 24 months?
Billing – do you invoice for work carried out and negotiate payment terms?
Right of substitution – do you have the right to send a substitute in your place?
Actual substitution – have you hired anyone in the last 24 months to work in your place?
In order to be considered a low risk and therefore less likely to be subjected to an IR35 investigation you will need to get more than 20 points; if you score less than 10 you will be high risk.

These tests will obviously only apply if you have a Limited Company; working through an umbrella company you are perfectly safe from IR35.

ContractorUmbrella Ltd has emerged as outright winners of the ‘Best Umbrella Company’ category in the industry renowned reader’s awards, hosted by ContractorUK, the UK’s largest contractor website.

Thousands of visitor’s flock to ContractorUK’s website everyday and they have picked ContractorUmbrella, a previous winner of the award, as the umbrella company that surpasses all others.

•  “Contractor Umbrella Ltd are consistently responsive, very helpful, polite – they go the extra mile. I can call in a flap and have my concern looked at immediately. They are also very friendly and very ‘human’ – I know someone will listen, I know I’ll get a follow up, and it’s personal. The way it should be.”
•  “Contractor Umbrella – everything happens near instantly, reliably and first time with cheerful communication at a great price. What more do you want from an umbrella?”
• “Contractor Umbrella Limited are always extremely helpful, rapid to respond and follow up and have a real personal touch. Though I’ve never met the people I deal with at the company, they feel like friends.”
• “It’s a pleasant surprise to have a real ‘body’ on the end of the phone that is proactive and understands your situation.”

Lisa Keeble, managing director commented “We are absolutely delighted with the results. There are over 250 umbrella companies in the UK and to be voted as Best Umbrella Company by our core market ‘contractors’, really means a great deal to us”

To benefit from our award winning service, please contact a member of the team on 01206 713 680 or email info@contractorumbrella.com.

Alternatively you can visit our website http://www.contractorumbrella.com.

The introduction of the Agency Worker Regulations on 1^st October this year has had an apocalyptic effect on the recruitment industry which has already had more than its fair share of legislation to deal with over the years. This latest offering from the EU was gold-plated, thanks to Union intervention, and is backed by a comprehensive guidance manual published by BIS. It would seem, however, that, despite BIS’ best efforts, misinformation is spreading fast and furiously and is becoming ever more distorted as some recruiters make desperate efforts to avoid the legislation that is costing them a fortune to implement and swiftly reducing demand for temporary staff. The problem with many of the ‘solutions’ that are being discussed on the internet is that they may well result in huge fines for recruiters and even business wrecking penalties applied by HMRC using the debt transfer legislation.

Lisa Keeble, MD at umbrella company ContractorUmbrella Ltd, works closely with recruitment agencies and is concerned that many are being misled by bad advice being offered on the internet by those without the technical legal knowledge required to interpret complicated new legislation. Mrs Keeble engaged the services of leading specialist recruitment sector lawyers, Blake Lapthorn, to help tackle the thorny issues arising from the AWR and both organisations feel that it is essential to raise awareness over the potential pitfalls for recruitment agencies. The intention of this article is to dispel the common myth that all limited company contractors will be outside the scope of the Agency Worker Regulations.

Oliver Weiss, a senior solicitor at Blake Lapthorn, goes on to explain:

It may be a while yet before the industry sees the first AWR cases being litigated in the Tribunals but, six weeks since their introduction, both Lisa and I have had the chance to reflect on the initial impact of the AWR on the temporary recruitment industry. We would like to set the record straight on what appears to be a commonly held belief, that one can avoid the impact of the AWR solely by drafting amendments to contracts, or by having the parties agree to designate their relations as being outside the scope of the AWR, none of which is necessarily correct.

In response to the AWR some recruitment agencies have insisted that they will only deal with and supply workers who operate through limited companies. This appears to reflect the fact that it has become something of an AWR truism that if you work through a limited company you will be “self-employed” and therefore automatically fall beyond the reach of the AWR.

It can certainly be said that those individuals who are genuinely self-employed will not satisfy the definition of an agency worker, either because such individuals are by definition not going to be working under the supervision and direction of the end user client or because either the agency or the client can be said to be a customer or client of a profession or business undertaking carried on by the individual. However, one should not underestimate how difficult it can be to show that the above conditions apply and in reality many individuals who work through their own limited companies are likely not to be self-employed. Determination of employment status is nuanced and complex, involving questions of mixed fact and law, and will depend on the circumstances of each case. It is therefore overly simplistic to adopt the mantra, as some agencies and clients appear to be doing, that a person who is working through a limited company is self-employed and therefore need not worry about the AWR. The law is very clear that it is not of itself sufficient that the parties have labelled the relationship to be one of self-employment if upon closer scrutiny what happens in practice does not reflect this and the individual cannot objectively be said to be genuinely in business on their own account.

Agencies that are requiring contractors to incorporate on the basis that this will take them outside the scope of the AWR are in most cases doing no more than re-labelling an existing relationship. That is to say if these contractors were not genuinely self-employed before they incorporated then in many cases they are unlikely to be self-employed after incorporation.

A lot of end user clients are seeking declarations from agencies confirming that the AWR do not apply as well as blanket indemnities in respect of AWR claims and in some cases these are being given simply on the basis of the mistaken belief that the contractors that are being supplied are outside scope because they are operating through their own limited companies. Not only does such an approach underestimate the complexity of employment status issues but it may also result in the agencies and end user clients being caught by the draconian MSC legislation and debt transfer provisions.

For umbrella services visit ContractorUmbrella’s website www.contractorumbrella.com and for legal serviced from Blake Lapthorn see http://www.bllaw.co.uk/

The Agency Worker Regulations have definitely got the industry talking since they came into force on 1^st October and more questions have been raised than answered. ContractorUmbrella would like to redress the balance so here are the answers to the current Top 10 questions about the AWR.

If you have any further questions please do not hesitate to contact a member of our team on 01206 761 326 or info@contractorumbrella.com.

In reverse order, at number 10 we have:

Q. What solutions are there to the AWR and how do we build in an opt-out to the contract?

A. There are no solutions to the AWR, it is enshrined in law and has to be complied with as it stands. Unlike the Conduct of Employment Agencies and Employment Businesses legislation of 2003, no opt-out has been negotiated and any attempt to avoid responsibility would be viewed by the powers that be as avoidance.

Coming in at number 9…………………………..

Q. Is the Swedish Derogation a loop-hole that will put all our contractors outside scope of the AWR?

A. The Swedish Derogation Model is a very strange name for something that umbrella companies have pretty much been doing for the last few years. Umbrella companies must offer employment under a full contract of employment which has provision for payment between assignments in order to satisfy mutuality of obligation as laid down by HMR&C. This was an existing business model, which is why section 10 was included in the legislation; it is most definitely not a loophole and is recognised by the Government, the British Retail Consortium and the CBI as a legitimate option for temporary workers.

New in at 8……………………………………………..

Q. If I ask workers to sign a disclaimer declaring that they are outside the scope of AWR I should be covered shouldn’t I?

A. Definitely not. Whether or not someone falls inside the scope of the AWR will be determined by their working practises. Ultimately a tribunal will make the final decision and using such a disclaimer would not alter their decision; it could make your position worse.

Dropping 2 places at number 7………………………………….

Q. As long as I make sure the contractor is earning 10% more than someone in a permanent position there won’t be any pay claims will there?

A. Pay is defined very clearly with the AWR so rough calculations are likely to cause problems. All of the following need to be taking into consideration when working out a pay comparator:

• Basic Pay based on the annual salary an agency worker would have received if recruited directly
• Overtime payments
• Shift allowances
• Unsocial hours allowances
• Risk payments for hazardous duties
• Payment for annual leave
• Bonus or commission payments attributable to the quantity or quality of work done by the individual.
• Non-contractual payments which have been paid with such regularity that they are a matter of custom or practise
• Vouchers or stamps which have a monetary value.

Up 1 at number 6……………………………………..

Q. Does all this mean that temporary workers will have to be given company cars and will be entitled to redundancy pay?

A. Don’t panic! The AWR do not give all the rights of a permanent worker to temporary workers. Temporary workers will have no entitlement to occupational sick pay, occupational pensions, occupational maternity, adoption or paternity pay (statutory rights are no affected) and will have no entitlement to redundancy pay either contractual or statutory. You also won’t need to provide company cars or offer loans for season tickets.

Straight in at number 5………………………………………………..

Q. How are we going to make sure that Day 1 rights are in place.

A. Day 1 rights are the responsibility of the Hirer and therefore all you can do is let the Hirer know what those rights are and ask for confirmation that your temporary workers will have the same access to facilities and information about job vacancies as permanent workers at the site.

A non-mover at number 4…………………………………………

Q. The umbrella company we work with has offered a complete indemnity against any claim under the AWR so I don’t need to worry do I?

A. Yes I am afraid you do. If you have not fulfilled your own obligations under the legislation and a claim is brought against you either for unequal treatment or avoidance, a tribunal will decide who is liable and apportion financial penalties accordingly. Indeed, blanket indemnities may well be viewed as an attempt to abdicate responsibility.

New in at number 3……………………………………..

Q. The hirers we work with are very large organisations and use a lot of temporary workers. Surely if we move them around the individual companies in the group or from division to division we shouldn’t fall foul of the AWR should we?

A. Yes you will. Companies which form part of the same legal entity will be considered to be one company for the purposes of the legislation and moving a temporary worker between sites will only affect their rights under the AWR if the roles are substantively different.

A non-mover at number 2…………………………..

Q. We have suggested that all contractors operate through a Limited Company so that they will be outside scope. We will have no liability will we?

A. Probably. Limited Company contractors will not automatically be outside the scope of the AWR. This issue is very specifically dealt with in the guidance published alongside the Regulations; there would need to be no supervision, direction and control of the worker in order for them to be considered outside scope; the tests used to determine status will be the same as those used for IR35. As with IR35, it will not be sufficient for a contract to be written with the intention of putting the individual outside the scope of either the legislation or IR35, an investigation or claim would result in the necessity of providing proof that the contract was representative of reality.

And at number 1……………………………………………………

Q. Nothing will happen until there has been a test case so why should I bother doing anything until then?

A. A legal precedent will clarify the position for everyone but doing nothing is really not an option. The legislation is in depth and complicated and will require extensive additional administration from everyone and, unfortunately, getting it wrong or doing nothing is likely to attract financial penalties. Compensation that can be awarded to an individual has no maximum but a minimum award of 2 weeks pay, there is the potential for class action suits and the penalty for avoidance is £5000 per infringement.

Working with a compliant umbrella company can certainly help relieve some of the stresses associated with this new legislation; two heads are better than one after all! ContractorUmbrella has been working extensively with specialist employment lawyers Blake Lapthorn so that we could be in a position to offer advice and reassurance to our recruiter partners.

We know that our Top 10 doesn’t even scratch the surface for most of you but our top team of advisors, including an ex senior HMR&C inspector, will be more than happy to answer any other questions that you have. 

Visit our website www.contractorumbrella.com. Alternatively you can speak to one of our expert advisors on 01206 761 326 or email us at info@contractorumbrella.com

In short the simple answer is no, an Umbrella Company cannot indemnify a company against being called to an employment tribunal brought about by a claim under the AWR. To quote the AWR guidance directly:

“The Regulations ensure that any party in the chain of relationships (i.e. a hirer or a TWA) can be named at the outset or joined to a claim and be liable to the extent that the Tribunal finds they are to blame for the infringement”

An Umbrella Company could put a spin on it and offer to cover the costs of an employment tribunal, but this something quite different to offering indemnity. This does however place a huge risk on the part of the Umbrella Company, as without any legal precedent set out in case law, the potential liability and legal costs could be massive.

Rather than offer this type of uncertain guarantee, ContractorUmbrella follows a policy of ‘best business practice’. We ensure that both ourselves and our agency partners are fully compliant and have taken all of the ‘reasonable steps’ that the legislation requires so that there is nothing to fear from a claim being brought. To this end, we have adapted our administrative and procedural instruments in preparation for October and are happy to work with our recruiting partners to secure mutual compliance.

If you would like to discuss any aspect of the AWR you can contact one of our expert advisors on 01206 713 680 or email us at info@contractorumbrella.com.

‘IR35 Friendly’ Contracts – Not So Friendly!!

On 27^th July 2011 the judgement was handed down from the Supreme Court in the case of Autoclenz Ltd v. Belcher and Others and it has confirmed that a contract that is written to be inside IR35 but is not a reflection of the work the contractor will actually be doing is not worth the paper it’s written on.

The written contract used by Autoclenz stated quite clearly that:

• the contractors were considered self-employed and were responsible for their own tax and NI contributions
• The intention of both parties was that the contractors were not, and would not become, employees of the company
• The contractors could provide a substitute if they were unable to work personally – “….you are entitled to engage one or more individuals”.
• The contractors would have to provide all or some of their own equipment
• There was no obligation on either side – “you will not be obliged to provide your services on any particular occasion not, in entering into any such agreement, does Autoclenz undertake any obligation to engage your services on any particular occasion”

The contract, taken in isolation, would most likely be considered, by any reviewer, to be outside IR35 but the Supreme Court Judge decided, based on working practises, that the contract was inside IR35 and the contractors would be considered as employees of Autoclenz.

The good news is that, as an employee of ContractorUmbrella, you do not need to consider IR35 or expose yourself to any future risks regarding your employment status. Working through an umbrella company you are outside the scope of IR35 as you are employed by your umbrella company and paid through PAYE. Visit our website www.contractorumbrella.com.

If you would like to discuss any aspects of using an Umbrella Company you can contact one of our expert advisors on 01206 713 680 or email us at info@contractorumbrella.com.

It is shocking that a large number of contractors have lost thousands of pounds after the demise of offshore umbrella company Tract Management. Those contractors affected are attempting to band together to bring justice against the owners of Tract Management who just seemed to disappear from the company’s offices overnight. 

With the introduction of BN66 , Disguised Remuneration Legislation (Finance Bill 2011) and the EBT legislation, it proves that HMR&C are serious about closing down schemes that make ‘too good to be true’ claims. The reality of the situation is, despite their promises, companies offering offshore and loan based schemes aren’t safe and you run the risk of the same thing happening with your money as happened to the unfortunate clients of Tract Management. If you live and work in the UK, you are liable for UK taxes and no clever solutions can avoid this fact.

Don’t gamble with your money – ContractorUmbrella Ltd is the market leading UK based Umbrella company and is fully compliant with all HMR&C legislation, including the AWR. Register today and it will be one of the best things you’ve ever done!

For more information visit www.contractorubrella.com. You contact one of our expert advisors on 01206 713 680 or email us at info@contractorumbrella.com.

Below are the 5 most common questions that recruiters ask us about the AWR. If you have any further questions you can visit our website www.contractorumbrella.com or contact a member of our team on 01206 761306 or info@contractorumbrella.com

Is the Swedish Derogation model a viable alternative to AWR?

The SDM is NOT an alternative to the AWR it merely provides an ‘opt-out from section 5 of the regulations in as much as they relate to pay.

Will contractors be classed as Agency workers if they run their own business ie a limited company?

Unless the contractors working practices will be outside IR35 they will fall under the scope of the legislation. It doesn’t matter what is stated in the contract – if they are found to be inside IR35 they would fall under the scope by default and any attempt to manipulate a contract to say that contractors are outside when they are inside will be viewed as avoidance.

What are ‘day one’ rights?

Day one rights are the responsibility of the Hirer and they relate to onsite facilities such as parking spaces, crèches, prayer rooms etc and access to information about job vacancies at the hirer’s premises. The legislation is intended to ensure equality for agency workers it is not intended to give them rights which are not afforded to permanent employees.

How can we keep track of the qualifying period if the worker is engaged with multiple agencies?

The rights come into force after the contractor has been at the client site or a site that is part of the same legal entity, in the same or similar position for a period of 12 weeks; the contractor should be asked to disclose their work positions and locations when registering with an Agency.

Can I move my temps to a PSC?

You can move temps to PSC but, unless their working practices fall outside of IR35, they will still fall within the scope of the legislation.

Following extensive consultation with specialist employment solicitors, Blake Lapthorn, Contractor Umbrella Ltd will be adopting the Swedish Derogation Model to meet the requirements of the Agency Workers Regulations (AWR).  The legislation aims to protect vulnerable workers from exploitation. It ensures that 12 weeks after starting a placement, they are afforded the same basic employment rights as their permanent counterparts – including the right to equal pay, working hours and holidays.

• Recruiters referring to ContractorUmbrella will be assured that their candidates will be working under a contract of employment and receiving a salary, even when between assignments.
• Contractor Umbrella, in collaboration with our Recruiter partners, will be making every effort to ensure that on completion of an assignment further suitable employment is sourced.
• Furthermore, ContractorUmbrella will obtain detailed site specific information including location, hours & nature of every assignment. Stringent checks and controls are being put in to place to ensure that the 12 week qualifying period is being evidenced in each and every case.

The Swedish Derogation Model is a natural evolution for Umbrella Companies; the employees of compliant umbrella companies have been working under a contract of employment for several years, this legislation merely reinforces this position. All employees will be paid a regular salary and will have full employment rights with regard to all Statutory payments relating to sickness, maternity/paternity, adoption and holiday. Potentially damaging equal pay claims will not be a consideration for any Recruiter working with a SDM Umbrella Company and relationships will be strengthened by the requirements within the legislation to maintain continuity of employment.

Additionally it should be noted that if a Contractor is working through a Limited Company (or PSC), unless they are genuinely in business on their own account, their working practices will fall inside of the IR35 legislation and will also fall inside the scope of the AWR. – if individuals are found to be inside IR35, any attempt to manipulate a contract to say that contractors are outside IR35 when they are in-fact inside will be viewed as avoidance.

As a demonstration of its position as market leader; ContractorUmbrella have been very diligent in swiftly implementing the changes and ensuring absolute compliance with the new regulations.

In a recent interview, Lisa Keeble, Managing Director at Contractor Umbrella Ltd was quoted as saying:

“This is an excellent way to go forward and an amazing opportunity for both Agencies & Contractor Umbrella Companies to formulate closer working relationships. Given the tight deadlines, we have been industrious in implementing the new changes to ensure that we continue the exceptional Customer Service that we have always provided.”

Visit our website www.contractorumbrella.com. Alternatively you can contact one of our expert advisors on 01206 713680 or email us at info@contractorumbrella.com.

In October 2011 a new piece of legislation will be put into place in the UK which was designed to protect the interests of individuals who work through Employment Agencies and give them rights equal to those of permanent employees in comparable positions. The legislation is referred to as the Agency Worker Regulations and includes Umbrella Company employees.

Under the terms of the legislation, anyone working through a Temporary Work Agency (TWA) will be covered by it unless they are working in business on their own account. Therefore, ‘Temps’, individuals working through Umbrella Companies and single person Limited Company contractors whose contract falls inside IR35 will all be protected by the regulations.

The Regulations give Agency Workers entitlements and protections, some of which come into force from the first day of the contract and some after a 12 week qualifying period.

The Day 1 Rights as they are referred to mean that from the very beginning of the contract an individual must have access to facilities at the Hirer’s (or end Client) site and also to vacancies in the same way as a permanent employee. This does not mean that a contractor would be entitled to a car parking space if there were none available but that they would be allocated a space if there were one available; the treatment must be equal to permanent employees not better. Listed below are examples of facilities provided by a Hirer (or end Client) that must be made equally available to both permanent and temporary employees:

• A canteen
• Creche
• Toilet and shower facilities
• Staff Common Room
• Mother and baby room
• Prayer room

After 12 weeks working on the same contract individuals who fall under the Regulations will have new equal treatment entitlements relating to pay and other basic working conditions. The working conditions referred to are as follows:

• Duration of working time
• Night work
• Rest periods
• Rest breaks
• Annual Leave
• Time off for ante natal appointments.

Visit our website www.contractorumbrella.com. Alternatively you can contact one of our expert advisors on 01206 713680 or email us at info@contractorumbrella.com.