Over the past week legal and policymaking developments impacting contractors and umbrella company workers have been announced. What do the experts think of the news?
Tax office closes down 18-month IR35 probe marking ‘turning point’
One of the first HMRC checks to have been closed down after the introduction of the off-payroll working rules is proof that these much-feared changes are manageable, particularly when the tax office takes a pragmatic approach to IR35 compliance, according to IR35 and contractor insurer Qdos.
The IR35 check involved a global organisation that engages over 300 contractors. and the case was “successfully shut down” marking a “turning point” in making all businesses aware that contractors can be safely engaged outside the scope of the IR35 legislation, says Qdos.
When it comes to IR35, in the past HMRC has been guilty of jumping to conclusions, accusing parties of non-compliance before having established the facts. The tax office’s pragmatic approach to this check was refreshing. Long may it continue.
Seb Maley, Qdos CEO
According to Qdos, the business, which has requested to remain anonymous, received a letter from HMRC in September 2021 containing numerous questions relating to the processes in place to ensure IR35 compliance under the off-payroll working rules – from how IR35 status is determined to how many contractors are engaged inside and outside of the legislation.
Following a rigorous review of the business’s IR35 compliance and with HMRC having been presented with the details of a robust compliance framework the tax office closed down this 18-month probe earlier this month.
“There has been so much concern surrounding the off-payroll working rules in recent years – to the point where businesses have forced contractors inside IR35 or stopped engaging them altogether for fear of falling foul of this complex legislation,” says Seb Maley, Qdos CEO.
“Above all else, the successful closure of this IR35 check – where the majority of contractors were engaged outside IR35 – is proof that the off-payroll working rules can in fact be managed. For risk-averse businesses, this should be a turning point,” he says.
Continuing, “The business subject to this IR35 enquiry provides the perfect blueprint for ensuring IR35 compliance. Along with having engaged an expert to carry out IR35 status determinations, a clear and comprehensive audit trail proved vital in evidencing compliance to HMRC.
“When it comes to IR35, in the past HMRC has been guilty of jumping to conclusions, accusing parties of non-compliance before having established the facts. The tax office’s pragmatic approach to this check was refreshing. Long may it continue.”
Rolled-up holiday pay to be reviewed
The Government is set to review rolled-up holiday pay as announced in its policy paper (see section 4.1). This is in addition to the news that there will be a consultation on umbrella company regulation.
“This is very good news,” according to Rebecca Seeley Harris, “not just for umbrella company workers but, it will also make it easier for umbrella companies to administer and reduce the likelihood of holiday pay abuses.”
Rolled-up holiday pay remains unlawful. This latest move to legitimise it is a step in the right direction.
Crawford Temple, CEO of Professional Passport
Seeley Harris says this is something that she has been lobbying for under the Fair Umbrella Campaign, along with others, most notably Matthew Taylor in the Taylor Review.
“Collectively the government appears to have listened,” she writes in a LinkedIn post.
She continues, “There is no commitment on timing for this but, hopefully, it will be pushed through for April 2024.”
Commenting, Crawford Temple, CEO of Professional Passport, an independent assessor of payment intermediary compliance says the latest proposal to consult on holiday pay is likely to be back on the government’s agenda following the recent consultation post the Harpur Trust case.
“As one of many stakeholders in the sector, Professional Passport fed into the consultation and suggested that holiday pay was reviewed so it is encouraging to see that it is now back on the agenda and up for discussion,” says Temple.
“Matthew Taylor in his Good Work Guide proposed that rolled-up holiday pay was made legal but the Government rejected that proposal,” he says.
He adds, “Rolled-up holiday pay remains unlawful. This latest move to legitimise it is a step in the right direction.”
Umbrella cleared of ‘skimming’ £4m but workers still upset
Independent work advisory, IWORK, has responded to the FCSA clearing umbrella company, Orange Genie, from salary skimming and unlawfully deducting wages from the umbrella employees they engage.
In October 2022, Orange Genie had been accused by Contractor Voice of “unlawfully and systematically taking money from contractors, week in, week out for many years”, by “secretly” deducting £2 from every payslip. The publication alleged that it had resulted in Orange Genie generating an extra £4 million in revenue.
Read the original Contractor Voice interview with The Freelance Informer here.
Whether or not this fits within the legal definition of an unlawful deduction, it’s still wrong.
Julia Kermode, Founder of IWORK
However, following an investigation conducted by FCSA’s Independent Arbitration Panel (‘IAP’), it was deemed that Orange Genie did not ‘skim’ this money, given it was deducted from a worker’s assignment rate as opposed to their gross pay.
More information on FCSA’s decision can be found here.
“As far as I’m concerned, any amount taken from a worker’s assignment rate which isn’t openly declared is skimming one way or another,” says Julia Kermode, founder of IWORK.
“That’s certainly how contractors see it,” says Kermode. Whether or not this fits within the legal definition of an unlawful deduction, it’s still wrong,” she says.
“These situations – which seem to happen all too often in the umbrella world – continue to tarnish this sector’s reputation. Quite rightly, contractors are angry and you can see why so many of them are wary about working this way,” says Kermode.
She continues, “I just hope that this case will encourage more umbrella companies to be transparent, so workers can be confident in their choice of umbrella going forward.”