With all the legislation surrounding supply chain compliance, and the significant liabilities that can be imposed, it is now becoming essential that recruitment companies ensure their contractors only engage with compliant payment intermediaries.
This will also impact allowing consultants to recrieve commissions from providers directly unless the recruitment company has adequate processes in place to ensure these are correctly reported for tax purposes. [see our Agency Intell Newsletter Volume 11 Issue 2 which contains common Q&A on the Criminal Finances Act.]
There are clear and valid commercial reasons why an agency should operate a PSL:
- To assist the contractor's selection of reputable providers of services.
- To protect the agency, contractors and end clients from any potential future and unforeseen liabilities.
- End clients insist on a level of care as they are cautious on structures due to issues such as money laundering, colluding in tax avoidance and employment issues.
- Potentially reduce the administration burden as a result of only dealing with a limited number of organisations.
All the reasons why an agency had a PSL previously, are as valid today as they were previously. Nothing has changed in that respect, in fact, it could be argued that with the implementation of new legislation, there is now an even greater need to run a PSL.
HMRC also appear keen for agencies to operate a policy of PSL's:
- They do not believe that agencies have the requisite knowledge to make any recommendations as to the best operating structure for their contractors. This point also demonstrates the need for a PSL to go beyond umbrella providers.
- With the Criminal Finances Act and Off-Payroll Working rules, and the significant liabilities attached, agencies must now carry out reasonable due diligence on any provider they select for a PSL.
- It is clear these rules are intended to marginalise the non-compliant providers in the marketplace. They can only gain access to the market by developing relationships with recruitment companies.
Clearly every agency that operates a PSL takes detailed steps to ensure any provider on the PSL is appropriate, as best as they can judge. They have to satisfy themselves that a providers offering is legitimate, robust, compliant and secure.
They also, and probably more to the point, want to ensure that no third party provider could damage their own brand.
So the real issue agencies face today is whether they have the in-house expertise to manage PSLs appropriately. Without this expertise due dilligence can easily fall short and still leave agencies exposed. It was for this reason that Professional Passport developed it's agency support service on managed PSLs.
By adopting Professional Passport's managed PSL you completely remove your business from any risk of debt transfer whilst at the sametime benefitting from our unique insurance backed provider compliance assessment.
Whilst agencies can still operate PSLs, we believe that when compared to Professional Passport's managed PSL, there is little benefit to you, the agency, in doing so.
Professional Passport advocate a 2 Tier PSL approach
You select a limited number of providers from our approved provider listings to work with. You would recommend these providers to any new contractor that does not have a pre-existing provider relationship.
This would be the complete list of Professional Passport approved providers and where a contractor already has a relationship with one of these providers you would allow this to continue.
This simple approach keeps the recruitment company protected and avoids conflicts with existing contractors.
We are now seeing many end clients, Framework agreements, MSP's and RPO's making contractual obligations on payment intermediaries with many specifically requiring a Professional Passport accreditation.