RACS Group has recently collated some useful information regarding current HMRC visits to Umbrella providers and some key points involved in their inspection process. It would be worth passing these on to your providers, asking them to demonstrate and evidence their processes. Failure to apply these rules correctly has seen an increase in payment demands via the Umbrella and/or Contractor for breaching the rules and over claiming tax benefits. Agencies are as yet unaffected by debt transfer for Umbrellas, however when issues are concerning ‘expenses abuse’ by an Umbrella provider and where the provider has been recommended directly by an Agency – this can lead to a ‘rail-roading’ situation and in certain circumstances debt responsibilities can be passed on.
Please ensure that each contractor receives ‘Individual Tailored Advice’ before they make an informed choice of which provider to use.
Points under the spotlight
1. Travel and Subsistence:
a. Correct Mileage rates being applied – exceeding the annual limits, providers are tested on their ability to calculate and apply correctly – threshold specific.
b. Classification of a Temporary Workplace – how do your providers clarify this? If it is not applied correctly then all mileage claims will be deemed null and void and thus repayment of benefits, plus interest and penalties have been requested.
c. What information is held about the contractors car? – Make, Model, Engine Size, Fuel type and Insurance requirements – how is this logged and what is the ‘proof for business’ use.
d. Overarching Employment Contract – are the ‘several required points’ evident in the contract to make it overarching and are they regularly tested? What processes does the Umbrella have in place? Distance travelled, Contract length and assignment variation(s), Audit processes, times of the day and the significance of each in relation eligible claims. Can these be demonstrated?
e. Expenses policies and procedures for all of the above, detailed records held and regular audit reviews.
2. Employment:
a. Overarching Contract – is it actually issued, does it state the full employment rights, do you have a current copy?
b. Employment requirements such as policies and procedures, right to work, validation of ID and proof of address. Are these all recorded and filed. Failure to do so breaches Border Agency requirements and immigration law this can lead to fines or imprisonment.
c. Holiday Pay, Sick Pay, SMP and other statutory payments – can these be demonstrated that correct payments have always made and any policies and procedures to the same.
d. Genuine employment – does the Umbrella clearly employ the contractor – many tests to show this and very different to agency conduct regulations. Or is it just disguised employment.
3. Expenses:
a. Issued Dispensation – does your provider(s) have one? Is it current, has it been revoked? The first steps HMRC would take with a non-compliant Umbrella is to revoke their dispensation. Ask your providers to get either a written HMRC statement to indicate an active dispensation or ask a Director to formally write a letter to the same effect.
b. Dispensation – are the rules being followed correctly? Can evidence be shown that this is the case? Are receipts logged and filed or are they allowing a tick-box scenario from the contractor without any checks and balances? What audit processes does the Umbrella follow to ensure compliance at all times. Failure to apply these may lead to HMRC taking a global view on every contractor and request all benefits be repaid.
c. Receipts – do they tally with weeks worked? Are they valid for days on a clients site? Are they allowable and genuine? Again, failure to record these events will lead to full benefit repayment with interest and penalties.
d. Audit processes – how are they governed? What policies and procedures are in place to maintain compliance and what efforts, if any are used to educate contractors into claiming correctly.
e. REMEMBER – your contractors are NOT allowed to make a profit from HMRC
These are but a few recent key indicators used by HMRC to establish whether or not an Umbrella is policing expenses correctly. Many larger agencies are now conducting a detailed in-house review processes of all their current providers to sort the good from the not so good. If you run a PSL or are thinking about reviewing or starting one please remember to demonstrate the following, should HMRC decide to visit:
1. You have conducted a internal review of all your providers, usually by way of an in-depth questionnaire – with evidence supplied by the provider.
2. You have checked a providers audit standards, who do they use and to what level are they audited. Remember HMRC will not issue their own compliance standard and ‘approved dispensations’ alone do not demonstrate that a provider is OK!
3. In every instance, ensure that all of your contractors have been given the correct ‘independent tailored’ advice concerning which product is best for them and their circumstances. Secondly, that they have made their own choice regarding providers – via a PSL or otherwise and that this choice has been documented.
Finally, RACS Group constantly reviews is processes and procedures (every 6 months) and with no less than 4 independent audit bodies. We take compliance very seriously and to this end has placed us on over 65% of the Top 100 agencies PSL’s since 2008. We can assist you will all of the above if required.
Don’t get caught out and don’t settle for second best!
