“Don’t trust verify” is a phrase that is often heard in the cyber and crypto communities to explain that when a result, fact, action, or ownership is verifiable it is always preferable and systematically superior to something that relies on trust. Considering how much is at stake for noncompliance, why do we not apply this same logic to supply chain management?
Accreditation, a system based on Trust
We have become so comfortable putting trust in 3rd parties that we often accept what we are told by them at face value.
Accreditation is a system of approval and governance created either organically, through known experienced parties who become trusted over time, or by design with a body or panel as the arbiter.
The vulnerability here is that the system of accreditation only works if the arbiter or authority continues to put the safety of those it’s bound to protect above its own interests.
Where an accreditation exists in the private sector its primary dedication is to pay wages and keep the lights on. No matter how well intentioned, as time goes by the primary dedication can, and often will overshadow the best interest of those the accreditation is trying to protect.
Why does this matter to the recruitment sector?
The recruitment sector for several years has come to rely on private sector umbrella accreditations which in part is due to the absence of a government regulator.
In theory, this is a good thing; 3rd party validation or approval is certainly better than nothing but given the recent scandals that have rocked the industry, there are several concerns about how beneficial private sector accreditation has been to the recruiter-umbrella relationship.
The convenience of pointing a candidate toward a list of accredited umbrella companies gives comfort to recruiters that they have done their part. Not so! If HMRC discovers noncompliance in your supply chain and asks you, what have you done to prevent it, the answer “we told them to use an accredited umbrella company” will not protect your business from prosecution!
Pay to play
Whilst accreditation has given umbrella companies a way of illustrating good standing and helped umbrellas build relationships with recruitment agencies, many umbrellas now see accreditation and the cost of acquiring the accreditation badge simply as a client acquisition cost. We believe sound compliance procedures and measures are born from the desire to protect businesses and their clients from illicit or immoral behaviour and not simply to get more customers.
Umbrella monopolies and high concentrations of employment
During the IT system failures in January this year some of the largest umbrella employment businesses in the UK were unable to pay their employees. Worse still they were unable to do so for many weeks and along with the system failures there were data breaches due to cyber criminals. Our concern is that the private sector accreditations have enriched and created a small number of mega umbrella companies at the expense of the rest of the industry and most importantly the safety of umbrella employees. Ultimately what these outages highlighted was how difficult it is to pay and protect so many employees and an inability to recover quickly enough from nefarious attacks and IT system failures.
Many of the umbrella companies that have liquidated owing HMRC millions or are on HMRC’s recently published list of known tax avoidance schemes were at one point or another accredited somewhere. Whilst becoming accredited is often trumpeted on social media as an achievement, almost nowhere can detail be found of companies that have lost accredited status and on what basis.
Holiday Pay scandal
Some of the largest umbrella companies have for many years withheld holiday pay owed to their employees. When the employees left at the end of their contracts if they didn’t ask for their holiday pay it was retained by the umbrella company. For the largest umbrella companies, this has meant millions in additional profits at the expense of their employees. Worryingly some of the largest beneficiaries of this immoral practice have been members of probably the most well know umbrella accreditation body: FCSA (Freelancer and Contractor Services Association)
An all party parliamentary group of MPs wrote to the FCSA:
“It has been suggested in the media that some umbrella companies may be reliant on not paying holiday pay, as part of their business model. We hope this is not and has never been the case with any FCSA accredited firm…”
Specifically, the MPs ask FCSA to confirm if any of their members have previously withheld holiday pay from workers and if under the terms of the latest ruling any workers engaged by FCSA members would be entitled to backdated holiday pay.
Exchequer Solutions – £11 Million HMRC Tax bill
FCSA accredited umbrella company, Exchequer Solutions, lost a First-Tier Tribunal against HMRC relating to an £11 million tax bill due to errors in processing historical contractor expenses.
HMRC found that part of Exchequer Solutions workers’ income was processed as travel costs paid free of tax and NI, rather than having the correct Income TAX & NI applied.
What is most shocking about this noncompliance is that on or around the 5th of Oct 2022 Exchequer Solutions proudly announced they had successfully retained FCSA membership for another year.
Don’t Trust Verify!
What recruiters and umbrella companies need is clear transparent supply chain oversight that is concentrated on payroll tax compliance as well as employee rights.
Umbrella Check’s unique supply chain compliance service for recruiters and umbrella companies eliminates the reliance on accreditation by providing genuine oversight and supply chain control.
Through the collection and encrypted storage of umbrella RTI and regular payslip samples Umbrella Check provides recruiters with genuine on demand oversight of their supply chain.
As well as this Umbrella Checks staff training platform helps a business demonstrate a culture of shared knowledge and understanding of what constitutes continued supply chain compliance.
The Umbrella Check service has been formulated specifically to help recruiters and umbrellas evidence they have met the “reasonable measures” threshold set out in HMRC’s 6 guiding principles for the “corporate offence of failure to prevent the criminal facilitation of tax evasion.”