Today the Chancellor of the Exchequer announced the Budget, which has been preceded by more leaks than Mélusine after a night on the town.
The Autumn Budget and Spending Review 2021 reaffirmed in paragraph 5.28 the Government's planned increase in National Insurance contributions by 1.25% effective from April 2022.
We regard the increase in National Insurance contributions as good news for contractors and possibly a death-knell for unscrupulous umbrella companies who pass on 'employment costs' to contractors. Why?
Any contractor who is ostensibly 'employed' by an umbrella company or deemed to be inside IR35 will experience a 1.25% pay cut. Typically, umbrella companies treat National Insurance contributions as a cost that is deducted from payment received from the recruiter or end-client rather than passed on to the end-client. That's why extreme caution should be exercised in relation to umbrella companies. Similarly, the fee-payer (normally a recruiter operating as an employment business) will deduct National Insurance contributions from the chain payment owing to the contractor.
Conversely, a contractor operating outside IR35 will be paid without deduction of tax by virtue of section 44 Income Tax (Earnings and Pensions) Act 2003. It is axiomatic that engaging contractors on an outside IR35 basis is now more attractive and spares end-clients concerns about the Agency Worker Regulations 2010 and other risks. With competent legal advice and expertly drafted contracts, end-clients can manage the perceived risk of the off-payroll legislation and save costs by examining procurement rather than recruitment options. For an engagement to be outside IR35, the contractor must be delivering a specific service and not supplying an individual. If the end-client is not procuring a specific service then IR35 (and off-payroll) unquestionably applies.
We call upon end-clients to reassess their approach to taking reasonable care in relation to status determination statements and consider taking independent and specialist legal advice as required by judgments such as Collis. Taking reasonable care does not mean completing a brief questionnaire supplied by a recruiter or an unqualified person then forcing contractors to purchase unmeritorious tax insurance policies which carry considerable risk in respect of the Managed Service Company legislation.
Following the PGMOL judgment, any tax insurance policy taken out by a contractor in relation to an engagement where the services are described by reference to a job title or role is unlikely to pay out. Even worse, the equitable remedy of subrogation allows an insurer to recover losses from a contractor (if the contractor is at fault, e.g., unreported changes in working practices) where the fee-payer benefits from a tax insurance policy and has made a claim following an HM Revenue & Customs inquiry.
Moreover, a contractor in this position is at risk of tax liability if the contract contains 'tax indemnity' clause. That's why it's essential for contractors to get independent and specialist legal advice even where the end-client has claimed that the engagement is outside IR35/off-payroll.
Coming soon, why the traditional employment business model has damaged the contracting industry and is simply incompatible with the off-payroll legislation.
Please contact us if you have any questions.
Don't opt-out of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 if the engagement is inside IR35
We have noticed an unfortunate tendency for recruiters to require contractors to opt-out of the Conduct of Employment Agencies and Employment Business Regulations 2003 (the "Conduct Regulations") where an engagement is deemed to be inside IR35/off-payroll. Whether or not the client has taken reasonable care about undertaking the status determination statement by procuring independent and specialist legal advice is a matter for another article. It is a shrapnel filled timebomb for any careless client.
Why do recruiters do this? Simply to avoid experiencing cashflow problems caused by the requirement in regulation 12 of the Conduct Regulations:
"An employment business shall not, in respect of a work-seeker whom it supplies to a hirer, withhold or threaten to withhold from the work-seeker (whether by means of the inclusion of a term in a contract with the work-seeker or otherwise) the whole or any part of any payment in respect of any work done by the work-seeker on any of the following grounds--
(a) non-receipt of payment from the hirer in respect of the supply of any service provided by the employment business to the hirer;"
Recruiters also wish to prevent contractors from engaging in a direct or indirect contractual relationship other than with the recruiter who made the introduction. Understandable perhaps if you run a recruitment consultancy, but the Conduct Regulations strictly prohibit subjecting a candidate (contractor) to any detriment for breaching any restrictive covenant (regulation 6 of the Conduct Regulations).
For the avoidance of doubt, a contractor using a company should never opt-out of the Conduct Regulations except where the engagement is outside IR35 as confirmed by independent and specialist legal advice (not an accountant, chatty charlatan, insurer or conveyancer).
A contractor in this position is not helpless.
Suppose a recruiter withdraws an offer of an assignment due to a contractor's refusal to opt-out. In that case, a contractor can issue a claim for damages in the County or High Court (depending on the amount claimed) founded on a breach of regulation 32(13). The amount claimed would be the value of the income lost but for the recruiter's breach of the Conduct Regulations, subject always to the duty to mitigate losses by looking for another engagement.
A contractor can revoke an opt-out notice after termination of the engagement and seek damages as above or make an interim application to the court to set aside an opt-out notice where the engagement is inside IR35.
The above applies irrespective of whether an umbrella company has been used.
Clauses intended to disapply or otherwise nullify the Agency Worker Regulations 2010 ("AWR"):
Invariably dishonourable or misguided recruiters who issue opted-out inside IR35 terms to candidates include clauses that require a contractor to indemnify the recruiter and client against any liability from a claim based on the AWR.
The intention is to prevent a contractor from exercising rights in the AWR to the relevant terms and conditions that are ordinarily included in the contracts of employees of the client after completing 12 weeks of an assignment.
We have seen examples where a well-known recruiter has falsely claimed that because the contractor is using a company, the AWR cannot apply. This is utter nonsense; the fact that a company is used is immaterial. Whether or not the AWR applies to an engagement depends on whether the client's capacity is that of a customer or a client of a business carried on by the individual. If the engagement constitutes deemed employment for tax purposes (IR35/off-payroll applies), then it is axiomatic that a client's capacity is not that of a customer of a business carried on by the individual.
The reference in the Income Tax (Earnings and Pensions) Act 2003 to being employed for "tax purposes" merely prevents an inside IR35 judgment or status determination statement giving rise to automatic employment rights for the contractor. Whether or not a contractor is an employee is a matter for the employment tribunal and courts applying judgments such as Cable & Wireless plc v Muscat  IRLR 354, CA. Clients insisting on giving blanket status determination statements or otherwise failing to take reasonable care (nothing less than independent and specialist legal advice is reasonable care) are simply laying the ground for future claims for employment rights in the employment tribunal by aggrieved contractors, i.e., a status determination statement that IR35 applies is a detailed confession that the client considers the contractor to be an employee.
Clearly, clients cannot claim that an engagement is inside IR35 then deny that the AWR applies. Not unsurprisingly, this is a frequently asked question for advice and we have successfully represented many contractors facing such appalling treatment.
Requiring a contractor to give a contractual indemnity for damages arising from a claim for damages regarding the AWR is "contracting out", so is a breach of regulation 15 of the AWR. A similar clause in a contract of employment is unenforceable and void.
We call upon trade bodies such as the Recruitment & Employment Confederation and the Department for Business, Energy & Industrial Strategy to abolish and prohibit opt-outed inside IR35 terms and to amend the AWR to properly protect agency workers.
Northern Light Solutions Limited v The Commissioners For Her Majesty’s Revenue and Customs UT/2020/000353
The Northern Light Solutions Limited ("NLS") judgment is somewhat concerning since few contractors can operate outside of IR35 if the judgment is taken at face value.
The judges seem to have fallen into the trap of overzealously applying the work/wage bargain. Judgments such as Usetech confirm that mutuality of obligations is not established if there is no obligation to pay when no work is undertaken. However, this argument cannot be taken in isolation and in NLS there was an expectation based on 7 years of successive renewals to provide work for the contractor's representative in the capacity of a project manager.
In Usetech, the appeal failed because there was an expectation to work 50 hours per week and "downtime" did not occur, therefore, rendering the payment for work done argument academic. Similarly, in Cotswold Developments Construction Ltd v Williams (per Langstaff J) "the focus must be upon whether or not there is some obligation upon an individual to work, and some obligation upon the other party to provide or pay for it."
Bean LJ developed this point in Addison Lee; mutuality of obligations existed "when the drivers were logged on and had not notified the company through the App that they were on break time, they were working at the company’s disposal and carrying out their activities or duties for the purposes of the Working Time Regulations", i.e., an obligation to do "some" work. The "dominant feature" (per Lord Wilson in Pimlico Plumbers) in the NLS contracts was an ongoing obligation to work inferred by the requirement to work 7.5 hours per day under the job title of project manager. Had the work been structured as a package of pre-agreed objectives rather than the supply of a project manager, the contractor may have forcefully argued that there was no ongoing obligation to work.
The arguments in NLS about the duration of an engagement are helpful. In Datagate, counsel argued persuasively that the duration of the engagement was determined by the nature of the services so was of little relevance. Changes in working practices over time are of greater concern. In Alternative Book Company, the taxpayer accepted extension after extension like NLS (possibly for different projects). The tribunal imputed mutuality of obligations based on an expectation for the client to provide work and an expectation for the contractor to do the work.
Whether a right to substitute is valid is determined by both the drafting of the clause and the nature of the services which is why role-based engagements are fatal for IR35, i.e., the client expects a specific person to undertake the work and cannot be said to be a customer of a business whether or not carried on by an individual or a team.
The judgment relied extensively on disputed notes of meetings held in 2014 and 2016 between HM Revenue & Customs and representatives of the client to override contractual substitution clauses, notwithstanding the obligation in section 49(4) Income Tax (Earnings and Pensions) Act 2003 to consider the terms on which the services are provided. Despite clear concerns regarding the notes, the "reality was that [substitution] … was not going to happen".
While substitution was not impossible, the judgment is appealable because the degree of "violence" (as per Atholl House Productions) inflicted by the judges in considering the notional contract was excessive and nullified a valid contractual right to substitute (applying Pimlico Plumbers). In practice, any substitute would need to be vetted for security purposes and brought up to speed on the project - the corollary would suggest a lack of understanding on the part of the client and others. The fact that substitution has not been exercised is irrelevant (as per Creasey).
The critical question was whether the client had a right of control over the contractor of a sufficient degree to constitute an employment relationship. Despite the fact that the contractor could not be moved from task to task, the judges relied on the Nationwide Change Framework to dismiss the appeal. However, it is clear that the Nationwide Change Framework was not examined in detail, nor were representatives of the client questioned about the practical meaning of the Nationwide Change Framework. Consequently, the judges took a literal approach to the Nationwide Change Framework and concluded that a relationship of subordination existed.
Lessons for contractors:
- Never meet with HM Revenue & Customs; any questions can be dealt with in correspondence.
- A substitution clause must be drafted as an enforceable right. A right to substitute is a natural consequence of a contract for services. If the client genuinely requires a service to be delivered, it follows that the identity of the individual used by the contractor is of secondary importance. If the client requires a specific individual to fill a role then substitution won't help and will rightly be dismissed as "window dressing".
- Never accept HM Revenue & Customs' refusal to disclose evidence. If HM Revenue & Customs refuses to disclose full notes of a meeting with the client make an application for disclosure pursuant to rule 16(1)(b) Tribunal Procedure (Upper Tribunal) Rules 2008. The tribunal has extensive powers under rule 7 to deal with non-compliance. A competent lawyer is trained to use rules to a party's advantage.
- Evidence can be challenged and witnesses examined by counsel. It is unlikely that the Nationwide Change Framework (as referenced in the judgment) imposed a right of supervision, direction or control of a sufficient degree to give rise to a relationship of subordination. Perhaps the Court of Appeal may reach a different verdict if such documents are critically assessed considering evidence of how project management services are typically performed.
- It remains vital to seek specialist independent legal advice regarding the contract. This appeal failed because the contractor was required to supply a project manager, not undertake a project. Even if the client is medium or large, the contract may contain a tax indemnity clause, so failure to properly set out the work as a package of deliverable objectives (among many other factors) can have severe consequences.
- Crucially, as NLS demonstrates, role-based status determination statements are inherently flawed and cannot be relied upon, either by the client or the contractor.
Introducing the Status Arbitration Service
The Law Place Limited is pleased to announce the Status Arbitration Service ("SAS") to provide a cost-effective, competent and rapid IR35 status determination solution for clients and contractors.
The Finance Act 2020 introduced the "client-led status disagreement process", which is wholly unsatisfactory and offends against natural justice by making the client act as judge, jury and executioner in attempting to decide the IR35 status of an engagement.
It has quickly become apparent that clients lack the expertise to assess IR35 status properly. When challenged, clients often rely on incorrect interpretations of the law, causing liability for breach of the Agency Worker Regulations 2010. Worse still, the same arguments used by a client to enforce a blanket decision on contractors can be used in the employment tribunal to claim worker's rights.
No matter how competent and experienced a client's in-house legal department may be, it is impossible to remove the perception of bias and conflict of interest.
The result is that many contractors have been forced to use umbrella companies against their wishes and clients have experienced difficulties in procuring specialist services.
How does the SAS work?
-The parties agree to refer a status dispute to the SAS for binding arbitration.
-The parties jointly instruct The Law Place Limited to arbitrate having agreed on a competitive fee.
-The outcome is a fully reasoned legal opinion providing a clear conclusion on the status of the engagement having considered the contractual terms and evidence concerning the working practices. It is negligent to disregard the contract terms irrespective of claims by others.
The process is rapid and straightforward, taking 1-3 days.
Advantages of the SAS
-There's no risk of a conflict of interest.
-Based on our 16 years of experience in IR35 and employment status.
-The Law Place Limited's director was trained in Commercial Arbitration at the University of Westminster.
-We do not recommend any insurers or promote insurance policies, so our advice is pure and carries no risk regarding the Managed Service Companies legislation.
-Prevents reputational harm for clients by promoting accuracy, clarity and fairness.
-The Law Place Limited is insured to provide legal advice on IR35.
-Don't be afraid of rocking the boat - Who Dares Wins.
Or you could rely on CEST or a contractor lacking legal qualifications and dedicated IR35 experience to help with "compliance". Remember, CEST is like a genie in the lamp giving any result you wish depending on the answers given, so its use does not satisfy the requirement to "reasonable care" in assessing status. Reasonable care means the behaviour of a "prudent and reasonable taxpayer in the position of the taxpayer in question" (per Judge Berner in HMRC v David Collis). It does not mean filling in a questionnaire and hoping for the best.
We acknowledge that Status Arbitration Service is a genius name and is the copyright of The Law Place Limited, all rights reserved.
The Law Place Limited is pleased to announce the launch of Umbrella Company Freeclaims, offering free Particulars of Claim to support contractors who have been forced to use umbrella companies reclaim unlawfully deducted employer's National Insurance contributions, the Apprenticeship Levy and underpayments of annual leave. Unfortunately, umbrella companies often receive bad advice and the aim of Umbrella Company Freeclaims is to allow contractors who have suffered abuse from "non-compliant" umbrella companies to obtain redress without incurring expensive legal fees or risk from high court litigation.
In a recent article in LinkedIn, The Law Place Limited's director set out the law regarding umbrella companies. Contractors using umbrella companies sometimes find that employer's National Insurance contributions have been unlawfully deducted from payment owing by the umbrella company. Technically an unlawful deduction from wages has not occurred when employer's National Insurance contributions have been taken from the rate charged by the umbrella company to the recruiter (sometimes called the "assignment rate" by anyone but lawyers) as covered by HMRC in their non-statutory guidance note ESM2390. Nevertheless, The Law Place Limited regards the practice advocated by HMRC as unethical and employer's National Insurance contributions should be paid by the recruiter's client (i.e. the hirer).
The Particulars of Claim also covers underpayment of annual leave, payment for annual leave on a rolled-up basis and non-payment of annual leave upon termination of employment. Let's be absolutely clear; it's never acceptable for payment to be made on a rolled-up basis.
The Particulars of Claim are to be used for claims in the Employment Tribunal with form ET1 and a grievance letter must be sent to the umbrella company before a claim to avoid a reduction in the award if your claim succeeds. The time limit for starting a claim in the Employment Tribunal is 3 months less 1 day from termination of employment or 3 months from the date of the last deduction. The Particulars of Claim are intended to be attached to an ET1 claim form and must be supported by evidence including the written contract of employment and a Schedule of Loss (ideally prepared by an accountant). The Schedule of Loss must show that the deductions of employer's National Insurance contributions have been taken from the gross amount payable and not the assignment rate charged by the umbrella company to the recruiter (or client if the engagement is direct). The Schedule of Loss must clearly particularise the losses.
Simply download the Particulars of Claim, fill in the areas in square brackets and delete the passages that are not relevant.
If you require advice regarding the Particulars of Claim or your claim generally, the standard rate of £150 per hour applies. If you have a question about the Particulars of Claim please use the contact form to arrange a paid phone call. Pro bono assistance may be available if you are currently receiving JSA or income related ESA. Alternatively, please consult Citizens' Advice.
This free offering does not in any way constitute legal advice and The Law Place Limited accepts no liability for use or misuse of the Particulars of Claim.
Introducing the Consultancy Project Agreement – a solution to the off-payroll legislation for consultancies
The new Consultancy Project Agreement package provides an innovative solution to the off-payroll legislation for consultancies engaging limited company contractors to deliver projects for the benefit of their clients.
The 'statement of work' model has been touted as a possible solution; however, this does not work unless (a) the contract terms are drafted by an expert in IR35 law and (b) the contracts for the limited company contractor and client contain mirroring provisions. For example, substitution can only work if the provision is enforceable throughout the contractual matrix.
We are aware of many statement of work type contracts which describe the services as a role and create control over the limited company contractor. Such contracts are utterly useless.
The Consultancy Project Agreement's author, Martyn Valentine LLB (Hons), has over 15 years of unblemished experience in advising thousands of consultancies, contractors and recruiters on IR35 matters.
The Consultancy Project Agreement is not an adapted recruitment contract – it's commercially balanced and eliminates risk in respect of both IR35 and the new off-payroll legislation.
How it works:
The Consultancy Project Agreement package consists of four parts –
-An agreement between the individual limited company contractor and consultancy providing maximum protection for all IR35 issues;
-An agreement between the consultancy and client containing mirroring provisions and commercial protection for the consultancy;
-An Assignment Schedule for the client setting out details of the overall project;
-An Assignment Schedule for the limited company contractor containing a definition of the services to be provided as part of the overall project.
The background law:
Chapter 10 Income Tax (Earnings and Pensions) Act 2003 defines the client as the party which receives the worker's services. This enables a consultancy to be defined as the 'client' irrespective of the fact that the consultancy has been engaged to deliver a project to its client.
While the draft legislation extends the scope of Chapter 10 to medium and large clients, an exemption has been created for clients which fall within the definition of a small company.
The qualifying conditions are met by a company in a year in which it satisfies two or more of the following requirements:
-1. Turnover of not more than £10.2 million;
-2. Balance sheet total of not more than 5.1 million;
-3. Less than 50 employees (not including contractors).
As a result, a consultancy meeting the above qualifying conditions will be exempt from the off-payroll legislation. Responsibility for assessing whether the IR35 legislation applies to the engagement remains with the limited company contractor, therefore, saving administrative costs and risk. As you are treated as the client meeting the small company exemption your client does not need to incur the risk of employment tribunal cases, compliance with the Agency Worker Regulations 2010 or litigation arising from the use of unregulated umbrella companies.
Contact us now on 07788 773871, 01323 479709 or firstname.lastname@example.org for information on pricing. The Consultancy Project Agreement can be adapted for your needs and prepared at short notice.
Remember, dealing with umbrella companies and employees is fraught with risk:
-Umbrella companies often illegally deduct employer's National Insurance contributions
-Umbrella companies offer nothing that a cheap payroll company can't provide for a fraction of the cost
-Employees can claim for many rights in the employment tribunal
-The administrative burden of complying the Agency Worker Regulations 2010
-The Equality Act 2010 applies to employees and workers – the employment tribunal is not restricted in the damages it can award to a claimant
-Do you really need the expense of a human resources department?
We have noticed a disturbing trend among recruiters who are forcing contractors to use umbrella companies as a condition of providing working finding services.
All too often, recruiters are making the provision of work-finding services conditional on the use of an umbrella or choice of umbrella companies.
Other than allegations regarding the Bribery Act 2010, it is understood that clients engaging contractors have bought into the fallacy that umbrella companies insulate them from employment tribunal claims.
Why is this wrong?
This practice amounts to charging for work-finding services. This is a criminal offence and is a matter for the Crown Prosecution Service. The Employment Agencies Act 1973 prohibits any direct or indirect charge for work-finding services.
The Conduct of Employment Agencies and Employment Businesses Regulations 2003 prohibits this practice and creates a right to claim damages in the county court for all fees and consequential losses including underpaid holiday pay, unlawful deduction of employer's National Insurance contributions and the Apprenticeship Levy. There is no reason to be forced to pay an umbrella company £20 - £40 per timesheet.
There are also allegations that certain umbrella companies may have questions to answer about the Bribery Act 2010 given that being on a 'preferred supplier list' is a virtually guaranteed source of income.
What should work-seekers do?
Contact The Law Place on 07788 773871 or email@example.com. We are considering various options for contractors to share costs.
DO NOT OPT-OUT OF THE CONDUCT OF EMPLOYMENT AGENCIES AND EMPLOYMENT BUSINESSES REGULATIONS 2003 UNLESS YOU CAN OPERATE OUTSIDE IR35 AND HAVE RECEIVED INDEPENDENT LEGAL ADVICE.
Unless you want to pay an umbrella company £20 - £40 per timesheet when payroll must be provided without charge by the recruiter you should either decline the offer of an engagement made under such circumstances or insist on your rights.
A recruiter is not liable if it provides a work-seeker with the choice of processing the payroll internally or a choice of umbrella companies as required by s.44(2) Income Tax (Earnings and Pensions) Act 2003.
Contact us if you have been forced to use an umbrella company.
Today the Chancellor confirmed that the extension of last year's reforms to IR35 will not be extended to the private sector until April 2020. This decision was based on the consultation process and representations from MPs. From April 2020, responsibility 'for operating the off-payroll working rules will move from individuals to the organisation, agency or other third party engaging the worker' (para 3.8). The reforms would eventually affect only 'medium and large' businesses without providing a definition. For small businesses it is presumed that the existing Chapter 8 IR35 rules will continue.
This is welcome news for professional contractors who rightly feared that the haphazard and ill-conceived implementation of the reforms to the public sector would create chaos in the private sector and lead to reduced pay. The Law Place Limited's director, Martyn Valentine, has assisted in research with ContractorCalculator which identified serious issues with HM Revenue & Customs' CEST tool and it is hoped that the delay will allow for HM Revenue & Customs to see sense and reconsider its approach to assessing employment status.
The delay creates an opportunity to lobby the government to abolish the reforms and avoid creating another burden for the private sector. Implementation of the reforms will involve significant expenditure on training, especially for HR departments which tend to have little idea as to the distinction between a genuinely self-employed professional contractor and an agency worker.
Please contact The Law Place Limited on 07788 773871 or firstname.lastname@example.org for more information.
Recently, there has been a spate of complaints by contractors about umbrella companies and employment businesses who are deducting employer's national insurance contributions where the client is a public authority and the new 'off-payroll' (i.e. Income Tax (Earnings and Pensions) Act 2003 Chapter 10) rules apply.
In other words, the public authority client has decided that the engagement constitutes deemed employment and the party below the public authority client in the payment chain, usually an employment business, has wrongly deducted employer's national insurance contributions from the 'deemed direct payment' owing to the contractor.
This despicable practice is prohibited by statute and evidence suggests that employment businesses and umbrella companies are 'skimming off' employer's national insurance contributions resulting in significantly less income payable to contractors. Where the off-payroll rules apply a public authority client must account to HM Revenue & Customs for employer's national insurance contributions separately and not as a deduction from the fees owing to the contractor.
This is precisely the same as for any employee; after all, if you're an employee and notice on your payslip that a deduction has been made for employer's national insurance contributions your response is likely to be unprintable. The warning signs for contractors include ambiguous statements concerning 'deductions' in the contract of employment with an umbrella company and payments for odd amounts.
The consequences for an employment business or umbrella company unlawfully deducting employment contributions are dire. HM Revenue & Customs in the first instance will claim any underpayment in national insurance contributions plus interest and penalties. Further, if the off-payroll rules genuinely apply then the contractor is likely to succeed in a claim for unlawful deductions from wages against the umbrella company in the employment tribunal. This is likely where 'services' description in the contract simply refers to a job title such as speech therapist. It is predicted that in the next 3-6 months a large proportion of umbrella companies will have been liquidated.
As the recent case of Elbourn demonstrates, the employment tribunal can effectively reverse an incorrect status decision caused by using the much-maligned CEST tool (or otherwise) where the contractor claiming unlawful deductions from wages is truly self-employed for the engagement in question and, therefore, does not fall within the tribunal's jurisdiction (s.230 Employment Rights Act 1996). The only defence for an umbrella company facing a claim for unlawful deduction from wages is to show that the public authority client is a customer of a business carried on by the individual and therefore the off-payroll rules don't apply. The contractor would then be entitled to payment gross of tax under s.44 Income Tax (Earnings and Pensions) Act 2003 from the outset of the engagement. This is clearly invidious for umbrella companies.
Where a contractor has been told by a public authority client that the off-payroll rules apply the best option is to insist on being supplied by the employment business as an Agency Worker and not to sign an opt-out of the Conduct of Employment Agencies and Employment Businesses Regulations 2003. This avoids any misunderstanding as to a contractor's rights under the Agency Worker Regulations 2010.
Let's be clear, there is no legal basis for using an umbrella company and it is unlawful for an employment business to insist or otherwise make a condition of providing work-finding services that a contractor uses a particular umbrella company which involves any form of payment or deduction from wages. In fact, a contractor in this unfortunate position would be entitled to compensation and the employment business would be investigated by the Employment Agencies Standards Inspectorate. Where financial inducements have been offered by an umbrella company to an employment business criminal penalties under the Bribery Act 2010 may apply.
Since 2003 employment businesses have been prohibited from adopting this practice. Where an employment business has attempted to force a contractor to sign an opt-out notice where there is no advantage for the contractor and the employment business wants to use a particular umbrella company it is open for the courts to strike down such a notice.
If you have any questions please send an email to email@example.com or call us on 07788 773871.