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Is umbrella really the best option for your contractors and clients?



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Is umbrella really the best option for your contractors and clients?

21 working days to April 6...

6 April onwards, many recruitment companies, as the payee, will be responsible for deducting the PAYE and NICs for the public sector contractors that fall within IR35. In this scenario, a number of contractors will refuse to work with public sector agencies, which will make it more difficult to recruit the right kind of talent. 

The fact is that contractors working for public sector agencies are the worst hit by the IR35 legislation. Not only do they lose money in the form of NICs and PAYE deductions, but they don’t even get the previously issued, 5% deduction for general allowances. These contractors already do not enjoy any of the benefits that full-time employees take for granted and now they are penalised further. 

How can your recruitment agency make sure that the losses to the contractors are minimised?  Several umbrella companies are busy touting a solution under which the contractor offers his/her services as a part of an umbrella agency. While this approach can help the workers save money, it also means that they cannot operate as a PSC for any of the assignments.  In addition, the high rates charged by umbrella companies can often eat into their income. 

As Carolyn Walsh points out, an umbrella agency may not necessarily be the best option for contractors. Especially when a contractor may work on multiple assignments for public sector as well as the private sector – some that fall within IR35 while others that fall outside – it may be a good idea to continue as a PSC. In this case, the contractor will have to pay the accounting fees and taxes, but not pay the hefty sum charged by most umbrella companies. 

For recruitment agencies and public sector bodies, it is essential to offer the contractor a choice – the contractor has a right to say they do not want to work on a basis that they are potentially being forced to.  In case the contractors choose to continue operating as a PSC, your recruitment agency must have a solution in place that enables you to quickly assess the IR35 status and run the pay & bill for a large number of contractors. 

So, are you ready for the IR35 reforms?
We serve NHS and some of the largest recruitment firms in the UK and understand the anxiety around IR35. Our experts understand the implications of the IR35 reforms and our F&A and payroll solutions can enable recruitment agencies to deal with the aftermath of IR35. If you require any assistance or want answers to your queries, please get in touch with our experts: 

Pom Chakravarti

Call 07870 678 557 or email pom.chakravarti@qxltd.com.  

Kunal Shah

Call 0758 4651087 or email kunal.shah@qxltd.com.

Other important IR35 related questions recruitment agencies must ask:

  1. How will the Apprenticeship Levy impact your recruitment agency? 
  2. Are your clients and contractors aware of all the changes that are happening? 
  3. How many public sector agency workers will be lost as a result of falling within IR35?
  4. Will contractors ask for higher pay rates to offset the Employer’s NI?
  5. Do you have a plan in place for paying the invoices for work done before April 6?
  6. Have you checked out the public beta version of the ESS digital tool by HMRC?


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