SUPPLY SIDE – Janet De-Havilland MD & CEO of Pendragon Consultancy Ltd asks if giving equal value to all parties in the supply chain can improve industry compliance and boost business?For over 20 years the recruitment sector has become reliant on Umbrella companies as an alternative option to employ and payroll their contractors; but you could be forgiven for assuming that this is a relationship built on trust and mutual value, but that is not what the evidence suggests.Let’s explore how Umbrella companies became thought of as a “necessary evil at the bottom of the supply chain” rather than a trusted partner providing real value. After all Umbrella employment done correctly makes a significant difference and provides an important contribution to Industry, to Government and is therefore a vital part of what makes the flexible workforce supply chain work.In the early days the perceived value was built on Umbrella companies being able to offset expenses enabling the contractor to reduce their tax liabilities as compensation for the lack of job security. This distinct advantage enabled recruitment businesses to charge out the same rate to their clients but retain the extra margin as they were no longer employing these workers, instead they were employed by the Umbrella company taking on all the liabilities for PAYE and NICs. A typical Agency margin at the time was 20-30 per cent, and the Umbrella 3-5 per cent. How do you know this? I know because I worked for three of the largest recruitment Agencies in the UK, and owned recruitment businesses in those days too and was then a client of several Umbrella companies.This relationship wasn’t always built on good practice or valued partnerships those were low down on the list. This led to no real value being placed on their contribution to the flexible workforce supply chain. As long as there weren’t many complaints from contractors, and their take home pay was more than on agency PAYE it was happy days! These types of relationships missed the point entirely where the Agency or end client was working with compliant suppliers; because it failed to recognise the expertise and added value offered by those partners, which could have helped them to secure more business, delivered a better service and prevented them from making mistakes around contractor engagement.Role forward to April 2016, changes to Travel & Subsistence expenses changed the landscape almost overnight. Umbrella companies were suffering huge losses, Agencies were asking them to justify why contractors should still use them. Having lost their advantage some Umbrellas chose to go down the non-compliant route to save their businesses; some went bust and others were swallowed up by larger players as their value plummeted and owners just wanted to get the hell out! ‘Umbrella, it was widely reported was done for’. Over. Totalled! I rather think of it as being on life support temporarily; nevertheless, it was changed beyond expectation.Dubious practices became the norm for Umbrellas, and some Agencies made requests for obscene amounts of rebates to get on a PSL, tax free income and vouchers to consultants to boost their pay, free booze, parties etc. all to secure or win the business. Whilst there is nothing wrong with agreeing commercial arrangements with your clients and partners, the arrangements need to be realistic and ethical in my view, and not at the expense of the services provided.There has been an influx of tax avoidance promoters, because the Umbrella market is now like the “Wild West” uncontrolled and lawless and they can ply their trade freely and openly, because HMRC enforcement is almost non-existent infact worse, impotent.IR35 changes in the Public Sector in April 2017 was calamitous. No need to revisit all that has gone wrong there; and the recently published draft Finance Bill 2019 included, that the off-payroll rules for IR35 will indeed be introduced into the Private Sector from April 2020. Further proof that HMRC has joined the dots, because IR35 is not the only major change arriving in the sector in April 2020. Your supply chain will become more important that ever as other changes are introduced.”The Good Work Plan”, includes the creation of a single enforcement body to tackle non-compliance in all aspects of labour supply, falling under EASI (Employment Agency Standard Inspectorate) It will have more effective powers over Agencies and the regulation of Umbrella companies.If there was ever a need to get your house in order and to put more robust measures of compliance into your supply chain, in my view this is that time. You can only truly achieve this by working collaboratively with your supply chain, be they Umbrella companies, Software houses, Tax advisors/ Accountants and Insurers, because you will surely need them all to be on your side when and if the proverbial ever hits the fan once these measures are introduced…. Recognise the value of all parties you have chosen to work with in the chain.In Pendragons’ experience the best client and supply chain relationships are based on openness, trust, compliance and mutual respect. They require investment of time and effort on both sides to be truly valuable.If you agree and want to work with an Umbrella company with values it truly stands by, and which holds FCSA accreditation then Call us, Meet us or simply Partner with us.[widget id=”recent-posts-2″]