What is the “Gross Payment Model?”

A new payment method, the “Gross Payment Model”, is becoming prevalent in the contractor and recruitment sector. It is important for clients and recruiters to understand this practice, which may involve tax avoidance and has potential implications.

Here’s how the model works: Clients or agencies make payments to an “umbrella company” (a term grossly unfair to legitimate umbrellas), believing that these funds will be processed as regular employment payments. However, instead of following the expected process, the umbrella company pays the contractor’s limited company directly. This triggers the off-payroll legislation, and because the worker has not received a valid Status Determination Statement (SDS) from the client, the client becomes liable for the associated missing tax.

To protect yourself, please consider the following steps:
1. Check the makeup of your Temporary Workforce within your supply chain to ensure you know who the operators are and what practices they have in place.

2. Educate your supply chain: Ensure your recruitment or those used by your subcontractors are aware of this payment model and understand its potential implications for your organisation and the individuals involved.

3. Verify umbrella companies: Before partnering with any umbrella company, conduct thorough due diligence. Check their reputation, credentials, and compliance with tax regulations to safeguard your interests.

4. Obtain valid SDS: Insist on receiving a proper Status Determination Statement from your clients, clearly outlining the employment status of the contractors. This document is crucial for determining tax liabilities and managing risks.

5. Seek professional advice: Consult legal and tax professionals (such as WTT) specialising in employment and tax law. They can offer valuable guidance to navigate the complexities of changing regulations.

By remaining vigilant and taking appropriate measures, we can collectively address the “Gross Payment Model” concerns and promote fair and compliant business practices within our industry. Let’s protect the End Clients and contractors vulnerable to this practice and maintain the integrity of the sector.

Nutral Solutions provides services to help map your Temporary Labour Supply Chain, whilst auditing the actors within that supply chain and working with WTT Legal to combat issues relating to Tax Fraud.