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What does compliance mean.....

In our industry it is generally accepted that "compliance" means compliance with laws, particularly tax laws. Of course laws can be interpreted in different ways. This keeps lawyers and tax advisers in a job but can give legal and compliance teams in agencies huge headaches. Providers can produce counsel's opinions that say 'this scheme works' - the trouble is these opinions are often procured because HMRC does not agree.

....what it means to us

At PayStream we take a low risk approach so our starting point is always "what would HMRC consider to be compliant?".  For example, HMRC has made it very clear that it will pursue offshore schemes and "pay day by pay day" models, so even the most robust counsel's opinion would not persuade us down those routes. We are accredited by the FCSA, are audited for MSC compliance by BDO and engage with tax advisers, lawyers and most importantly HMRC to keep up with changes in legislation or HMRC's approach.

Why should agencies be concerned about service provider compliance?

Financial risk

Financial risk

  • There is risk of debt transfer under MSC legislation if agencies work with a service provider who is “involved” with its clients.

  • If contractors are using offshore schemes, HMRC can use the Offshore legislation to automatically transfer liabilities for unpaid tax to third parties, which would include agencies and their clients.

  • Under the Onshore legislation, agencies have significant responsibility in respect of contractors who operate in a self-employed capacity. Where a worker is subject to (or to the right of) supervision, direction or control, the agency has a responsibility to operate PAYE as though the contractor was an employee.

  • Where deemed inside IR35, the “fee payer” paying the PSC must pay employer’s NI, the Apprenticeship Levy (where applicable) and deduct employed levels of PAYE and National Insurance Contributions (NICs) from PSCs operating in the public sector.

Reputational risk

Reputational risk

Agencies spend time and money on building their brand so being associated with a non-compliant provider makes little sense particularly since clients are becoming more and more interested in a compliant supply chain. The public sector and the banks now look for assurance that contractors are paying the right amount of tax.

Culture

Culture

If you are trying to embed a culture of doing the right thing for contractors it makes sense to look at the culture and values of your suppliers.

Value

Value

If you are looking for an exit you will need to demonstrate to a purchaser that your earnings are sustainable. For example if you work with a partner using a 'pay day by pay day' model a purchaser will undoubtedly look to discount your earnings on the basis that HMRC will challenge the model. Similarly the multiple attached to business profitability is easily discounted if non-compliance is identified.

Personal responsibility

Personal responsibility

The directors of companies are responsible for determining the risks the business is willing to take.

What is the best way to determine a service provider's compliance?

Send a questionnaire

Sending out a questionnaire with a series of compliance related questions is a good starting point but the difficulty is how to validate the answers given. Everybody says they are compliant.

Third party accreditations

Check what accreditations the umbrella company has and ensure they are from trusted industry bodies such as FCSA, APSCo, and others. Companies who achieve these accreditations are committed to high standards and best practices.

Rely on third party audits

Generally these give more comfort than a simple questionnaire provided the auditor has visited the service provider to examine working practices (which would be HMRC's approach). You should check this point. 

Carry out a site visit

Actually visiting the provider and carrying out a site visit will enable you to review their working practices yourself.

Ensuring compliance internally

At PayStream we have a legal team of 8 people who understand exactly how the business should operate. The key is to ensure that the rest of the business has the same understanding. To that end we have:

  • process mapped our key processes

  • scripted key conversations

  • automated key communications. Our in house IT development team allows us to do this

  • held regular training sessions for staff

  • acquired call recording software which allows calls to be recorded and assessed.

This allows the internal Legal team to monitor and assess the rest of the business against our compliance templates. This happens on a monthly basis and the sales team commissions are contingent on passing these compliance audits which is a powerful motivator.

Very importantly we get external auditors (BDO for example) to vet our processes and to audit the audits. We get a certificate of compliance from both parties and their comments are fed back to the business by the Legal team.

By focusing, from a compliance perspective, on our interaction with contractors and agencies we identified areas where we can improve our customer service and again part of the Legal team's job is to feed this back to the business.

We believe that our stance on compliance puts us in a strong position to grow our business. Clients, now more than ever before, are keen to ensure a compliant supply chain. This means that agencies are looking more closely at what service providers actually do and are gravitating to those that can demonstrate that they are operating compliant

"PayStream explain the set-up of a Limited company to contractors in a clear and understandable way. This is why contractors are happy to go with PayStream. Contractors find it easy to speak with you about any query."

R. Thomson – Infinity Resources

The right fit for you

Compliance to PayStream means operating in a compliant manner in line with the law, particularly employment and tax law.

The right fit for you

Infographic: What does compliance mean?

'Compliance' means compliance with laws, particularly employment and tax law. Our infographic explains why only using compliant providers is important along with some simple steps on how to determine a service providers compliance.

Launch infographic here
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