Non-compliant umbrella companies are causing havoc in the industry. However, it’s worth remembering that compliant umbrella companies help the government and don’t contribute towards lost tax. Please keep reading, and we’ll explain what we mean. We also look at the difference between compliant and non-compliant umbrella companies.
Helping contractors pay the correct tax and National Insurance Contributions
Compliant umbrella companies exist to provide a payroll service to temporary workers. The only income they generate for themselves is their margin, and the rest of the deductions on an umbrella employee’s payslip are sent to HMRC. This is why compliant umbrella companies are no threat whatsoever to the government. They’re actually the opposite. They help ensure contractors are paid compliantly and make the correct tax and National Insurance Contributions
Should the umbrella industry be regulated?
There have been a lot of stakeholders demanding the government to regulate the umbrella company industry. If regulating the industry helps protect temporary workers from tax avoidance schemes, we’re all for it. However, we would like to express our disappointment that is has had to come to this. The FCSA and Professional Passport, two professional bodies dedicated to self-regulating the sector, have done wonders in promoting compliance. If every umbrella adhered to the codes of compliance that members of these organisations adhere to – there would be no such thing as non-compliant umbrella companies in the UK, and no tax avoidance schemes.
Compliant umbrella companies
Here are some pointers about compliant umbrella companies that our readers should be aware of. Compliant umbrella companies:
- Are committed to providing a compliant payroll service – PAYE. They will never suggest they can “increase your pay retention” and help you “pay less tax”.
- Will provide you with accurate, structured take home pay protections based on your circumstances.
- Value the FCSA and Professional Passport. Suppose you’re interested in using an umbrella company. In that case, it’s a great idea to choose one that is accredited by either the FCSA or Professional Passport because they’re the two recognised and respected industry bodies committed to compliance.
- Deduct a margin for each payment frequency, and this is the only income they generate for themselves. All other deductions are sent to HMRC.
- Do not retain holiday pay. Instead, 12.07% of the umbrella employee’s assignment rate is paid each payment frequency or retained and paid later.
- Provide employees with benefits, including employee rights, continuity of employment and free insurance – to name a few.
- Have no tie in period and no hidden fees.
- Will require you to provide identification and right to work (RTW) in the UK before completing your registration.
- Make it their priority to explain everything before you register, and it will give you a chance to ask any questions you have. You must understand how the umbrella company operates before committing.
- Do not force you to sign up, and are kind, professional and understanding on the phone.
- Should all offer you similar take-home pay. Please don’t be fooled by any businesses offering you substantially higher pay retention when compared with another umbrella. All umbrella companies process your payment in the same way (PAYE), and the only thing that will alter your pay retention between providers is the margin they deduct.
Non-compliant umbrella companies
While they only make up a tiny amount of the umbrella industry, non-compliant umbrella companies are targeting dishonest recruiters and are enticing contactors to avoid paying the correct amount of tax. In some cases, contractors have been entirely unaware they’ve engaged with a tax avoidance scheme, and this is worrying and entirely unacceptable. Keep an eye out, because non-compliant umbrella companies:
- Give the industry a bad name.
- Encourage, promote and facilitate tax avoidance.
- Must be stopped.
- Don’t care about their employees and are happy to encourage tax avoidance. Therefore, they do cost the government millions, if not billions in unclaimed tax.
- Will frequently target recruitment professionals for referrals. This was made clear in the recent case about mini umbrella company fraud (MUC).
- Can land honest temporary workers in serious trouble. Some contractors have indeed been using tax avoidance schemes against their knowledge.
- Are usually operated by criminals who are almost impossible to track down. Therefore, unpaid tax liabilities are passed down the chain – leaving agencies and contractors vulnerable.
- Use unusual languages such as “reduce your tax payments”, “be IR35 friendly”, etc. Always be wary. If you are looking for an umbrella, make sure they operate PAYE.
A majority of umbrella companies in the UK are fully compliant with HMRC guidelines and help contribute towards the economy in terms of taxes and National Insurance Contributions. If every umbrella was compliant, the government would be delighted because contractors, freelancers and agency workers would be subjected to PAYE – and there would be no outstanding tax liabilities. However, non-compliant umbrella’s are still making the headlines, and perhaps more needs to be done to protect honest temporary workers from greedy criminals and recruiters with no integrity. Compliant umbrellas help the government and don’t contribute towards lost tax – but non-compliant umbrella’s remain a real threat to society.
Top 10 umbrella companies
Are you interested in using an FCSA or Professional Passport accredited umbrella company? If you are, you’ve come to the right place! Please check out our top 10 umbrella companies – they’re all accredited by either the FCSA or Professional Passport, and some have special offers at the moment.