Janet De-Havilland CEO, Pendragon Consultancy writes for the Global Recruiter Magazine – March Compliance Issue

The situation

Does the introduction of legislation and the various spotlights produced by HMRC to dissuade and alter the behaviours of contractors, employment businesses, end clients, umbrella companies and contractor accountants work?

Well after 22 years of self-policing, the experiment has not worked. Since the introduction of intermediaries legislation known as IR35, MSC legislation in 2007, the removal of expenses in 2016, the introduction of the Off-Payroll rules 2017 (public sector) and 2021 Off-Payroll rules (private sector) have been pivotal moments. There is a direct correlation between these changes, the lack of application, understanding and lack of enforcement by HMRC that has created a perfect storm under which non-compliance and tax avoidance has been allowed to proliferate and flourish.

Agencies and Umbrella companies have been pitted against each other and that is really bad news and is getting worse. So whether it’s regulation of Umbrellas or stronger enforcement of the Agencies rules or both things need to change. Within the supply chain, we are co-dependent as the Agency relies on end

clients to gain business and Umbrella companies to deliver that business by employing the workers they place into those clients. The problem is that this relationship has deteriorated in recent years and the cracks are now showing. The co-dependency is an unhealthy one – it’s more of a necessary evil, than an equitable partnership and that is why non-compliance, deception, and criminality have been able to find safe harbour within the contracting sector.

The impact of legislation

The legislative landscape has been a huge contributor and the tightening of rules in one area have caused a protrusion in another rather than providing a remedy for the source of the

actual problem. To combat the problems Agencies face from their clients like margin constriction and non-compliant competitors, they have turned that pressure and pain onto the Umbrella companies they interact with by way of unreasonable demands for incentives. Incentives are the biggest drivers of non-compliance and agencies have become more aggressive in their requests, if you want to be included onto their PSL’s. Compliant Umbrellas cannot compete and therefore the non-compliant providers have

seen this as an opportunity to grab market share. Move forward to today and the market is in total disarray, and other changes to legislation are starting to bite.

Why embracing compliance honestly matters

Compliance is part of your obligation to stakeholders, suppliers, staff, clients, and the communities you support (contractors).

Given that statement it’s surprising that some organisations have given little thought to compliance. There is a nonchalance about regulating staff conduct and scrupulously adhering to the regulations and laws. The unstated assumption seems to be that profit by any means is “good” and compliance is “bad”. That assumption is profoundly risky for any size organisation.

Without an effective compliance function, you cannot reliably build or maintain trust with others. Trust is fostered through honest communication, following through on commitments and repeated interactions with others. The old adage, that it takes you 20 years to build a reputation but only 5 minutes to watch

it go up in smoke is a reality because leaders consistently rank reputational risk as their number one worry, so why leave this to chance. Compliance within your business should be treated with the same vim and vigour given to optimising sales, your value proposition, and client service; because internal threats are far more damaging than those coming at you externally. Hold staff accountable for compliance values and ethics and communicate which behaviours will and won’t be tolerated. Compliance done well provides the ultimate protection of your reputation and brand.

Lack of understanding of the importance of compliance is usually because the business sees it as an exercise in saying no also see those in charge of enforcing the rules responsible for prohibiting behaviours for making money. This is a huge misconception because compliance reduces errors, drives

change and innovation and increases efficiency and effectiveness. Compliance done correctly is designed to provide a resounding “yes” and should not be consistently generating a no.

Pendragon Comply supports clients to create robust compliance strategies and policy’s through its, advisory and outsourced compliance & auditing services – From corporates to SME’s, we can help. For further information or to book a complimentary consultation in confidence please get in touch.