Recently it has come to light that part of the IR35 reform that is due to come into play next April will cause problems for both umbrella payroll services and agencies.
The legislation as it currently stands has caused some confusion regarding the definition of ‘intermediaries’ and the resulting impact on who is and isn’t required to make payroll deductions from payments. As it reads, this responsibility will fall to agencies.
This would mean that agencies would need to employ the contractors that work with them which in turn would negate the need for the contractor to engage with an umbrella service, basically making umbrellas more or less obsolete.
Many agencies are not poised to take on the role of employer and as such would need to create a department to handle the additional tasks, tasks that umbrella’s currently handle.
If this policy is left to stand as is, recruitment agencies and umbrellas as we know them will have to change.
HMRC have acknowledged that there is an issue with the legislation as it currently stands, and that the potential impact on umbrellas and agencies is totally unintended. They have also acknowledged that it needs to be fixed.
We are currently waiting on a formal statement from HMRC which will hopefully be provided today (Thursday October 15th).