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Recruiters: Why You Need a Compliant Umbrella Company PSL

Umbrella Company

Using a Preferred Supplier List (PSL) of reliable, compliant umbrella companies is a great way to take control of your supply chain. There are several advantages to this, but arguably the most important is that it helps you ensure compliance among your suppliers. In this article we’ll look at why you should care what your suppliers are doing, and how you can protect yourself with an umbrella company PSL.

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What we mean by an umbrella company PSL

A preferred supplier list is a list of umbrella companies that a recruitment agency agrees to work with. Effectively, you restrict your contractors’ choice of umbrella company to a short list that you have pre-vetted for compliance, service levels and any other qualities that you decide on.

The alternative is to leave this choice completely up to your contractors, and they will choose their umbrella company based on their own criteria and with varying levels of care. This will leave you either spending a lot of time and money on vetting procedures, or blindly trusting your contractors to make the right choice.

Is it legal to use a PSL?

Some contractors may have been advised that the use of a PSL is not legal, because a recruiter is not allowed to make the provision of their services conditional on the use of another service that they are connected to.

In reality this would only apply to your PSL if the entire list fit the definition of connected companies, which requires a family connection or shared director responsibilities.

A normal business to business relationship does not constitute a “connection” in this sense, and recruiters are absolutely permitted to decide which umbrella companies they are prepared to work with.

Why is it important to ensure compliance in your supply chain?

There are several reasons why it’s in your interests to ensure compliance in your supply chain, including the need to protect your contractors, and potential reputational damage when HMRC discover something untoward going on. Perhaps the most important, though, is the Criminal Finance Act 2017, which makes it easier for HMRC to target and prosecute recruiters who facilitate tax avoidance and tax evasion.

What you need to know about the Criminal Finance Act 2017

  • You’re guilty of non-compliance where you promote tax avoidance and tax evasion. This includes referring contractors to non-compliant umbrella companies and payroll providers.
  • It takes just one member of staff to make a single unwise referral, and the whole recruitment agency will be accountable.
  • Penalties can include custodial sentences and unlimited fines.
  • The only viable defence is to take “reasonable steps” to ensure compliance in your supply chain. If HMRC investigate you must be able to demonstrate that you've done everything possible to remain compliant, including vetting your suppliers and training and monitoring your staff.

The danger is real

It’s surprisingly easy to find yourself caught up in a tax-evasion scandal, which could see you defending your commercial choices in court, or facing criticism in the national press.

For example, the BBC recently uncovered systematic, industrial scale fraud involving the setting up of over 48,000 mini umbrella companies over the last five years.

A few recruitment agencies have been named in the press for their involvement, but fraud on that scale will have ultimately involved hundreds of recruiters, all of whom are at risk of prosecution if their staff encouraged contractors to sign up.

The correct use of a compliant PSL can make it impossible for this kind of scheme to catch you out.

 Using a PSL to ensure compliance

Without a PSL, you’re likely to end up working with many different umbrella companies, none of which you have any real relationship with. In this situation it will be extremely challenging to ensure compliance in any meaningful way.

A PSL allows you to control which umbrella companies you work with. This makes it much easier to protect yourself and your contractors against involvement with tax avoidance and other activities that would exploit them or put them at risk.

One way to do this is the make FCSA accreditation a condition for inclusion on your PSL. This would mean every umbrella company you work with is regularly audited against FCSA’s published code of conduct, which is widely acknowledged as the most rigorous in the industry.

If you have questions of if we can help in any way, please call our expert team on 01296 468 483 or email info@orangegene.com.

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