Umbrella company contractors and increasingly limited company contractors are paying what amounts to yet another tax on their incomes. And it comes from an unexpected source.
In addition to charging margins on the weekly or monthly earnings of their contractor clients, it seems that some agencies have turned their attention to the service providers, demanding what are becoming known as ‘timesheet levies’ from umbrella company employment services providers and contractor accountants.
Of course, paying a finder’s fee or sales commission is an age-old way of rewarding a referrer of new business, and is a perfectly legal process. Entire industries use this practice in an entirely transparent and honest way.
But it seems that the games a small minority of agencies are playing are somewhat insidious and are becoming increasingly detrimental to contractors and the contracting sector in general. They could even attract the unwelcome attention of HMRC and other regulatory bodies. And that’s extra attention the contracting sector could do without right now!
Some agencies are indulging in an ethically highly questionable practice. They are insisting that contractors only use preferred umbrella company and contractor accountant service providers – often those who are prepared to give a kickback to the agency – with the threat that otherwise the contractor won’t even be put forward for interview. In extreme cases, this could be bordering on illegality.
Contractor accountants paying a levy to agencies for each invoice are playing with fire, as this practice borders on a breach of the Managed Services Legislation, which could result in their contractors owing a considerable amount of extra tax.
Currently, it seems that not all umbrella companies and contractor accountants pass on the costs, but one has to ask the question – how does the service provider fund this scenario? In most cases, it will be the individual contractor that ultimately pays for the timesheet levy through increased fees to their solution provider.
It is also clear that some service providers refuse to play ball at all, and take the resulting hit of lost business, because they lose their places on agencies’ Preferred Supplier Lists (PSLs).
Have some agencies become greedy, or are they legitimately trying to open up a new income stream? What should contractors be doing in response to the news that they are paying yet more of their hard-earned cash to agencies who are already taking a big margin? Should HMRC and other regulators be invited to investigate the practice, or are they already about to?
ContractorCalculator has created an exclusive umbrella checklist specifically for umbrella company employment solutions providers. The Contractor Umbrella Pricing – Costs to Consider checklist has been designed to equip contractors with the knowledge to start asking questions of potential service providers and to enable contractors to make informed decisions about the choice of provider they use.
After all, in a free market economy, choice ultimately results in lower costs, improved services and higher standards. And choice is what contractors stand to lose if timesheet levies restrict contractors to suppliers prepared to pay-off agencies in order to remain on their PSLs.
Dave Chaplin is a former IT contractor in the City of London, and is founder and CEO of ContractorCalculator, and author of the Contractors' Handbook.
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Published: Tuesday, March 23, 2010
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