As the countdown for off-payroll changes in the private sector draws ever closer, the Low Incomes Tax Reform Group (LITRG), part of the Chartered Institute of Taxation, has released a 149-page report covering umbrella companies. The report makes for some interesting reading, and we recommend our readers take a look.
Who is the LITRG?
As specified on their website, the “LITRG is an initiative of the Chartered Institute of Taxation, which is a charity – we are not part of HM Revenue & Customs (HMRC), the government department which deals with tax and tax credits. Although we do engage closely with HMRC and other government departments on our work, we are unable to access tax or tax credit records, make changes to information or pass on reported changes to HMRC.”
View the report by the LITRG
To view the report written by the LITRG, please click here. You’ll be taken to the LITRG’s website, where you’ll have access to the PDF version.
The report looks closely at the operating practices of umbrella companies and dives deep into umbrella company expenses, benefits of using umbrella companies, regulations, recent problems, complexities within the supply chain, Personal Service Companies (PSCs), disguised remuneration, Key Information Documents (KIDs), and more. It even investigates mini-umbrella companies – a tax avoidance arrangement that The Umbrella Companies Team has previously written about (see article entitled: “Mini umbrella companies” (MUC) are the latest thing to try and give the marketplace a bad name).
Interesting facts about umbrella companies
The report includes some fascinating facts about umbrella companies and the temporary labour market, including:
- There are an estimated 600,000 umbrella companies in the UK.
- There are over 500 umbrella companies.
- Agencies rely heavily on referral fees as a source of additional income.
- There are over 40,000 recruitment agencies in the UK.
- Half of agency workers require an umbrella company.
- Umbrella’s first came into the marketplace in 2000.
“The general poor reputation of umbrella companies does not uniformly match the reality”
The Head of The Low Incomes Tax Reform Group, Victoria Todd, said the following about the report:
“This report sheds light on an under-researched part of the labour market.
“Many people think that umbrella companies exist only to exploit the tax system and lower-paid workers. That is not the case. They perform a number of useful and legitimate functions such as taking on the payroll and HR function of temporary work agencies who can’t or won’t do this in-house and providing an alternative route for freelance contractors who would otherwise have to work through a limited company.
However, there is a minority of umbrella companies whose bad practice and non-compliance sadly tarnishes the rest of the industry. This includes some set up specifically to operate disguised remuneration schemes.
One of the outcomes of the public sector off-payroll changes in 2017 was a mass shift of contractors into loan arrangements via umbrella companies. This did not end well. Serious and urgent work is needed to prevent this happening again with the private sector off-payroll changes being introduced from April 2021. A single enforcement body for employment rights, as is being considered by the Government,3 would help but is not on its own sufficient.
While disguised remuneration is very topical, in order to understand the experiences of most umbrella company workers, it is important to look beyond it. What we found when we did that was very interesting and thought-provoking and will certainly help shape our future work in this area.
Looking across the landscape in a balanced way, it is clear from our research that the general poor reputation of umbrella companies does not uniformly match the reality and is not deserved by many in the sector. It is important that this is acknowledged and that the balance is redressed.
We hope this report will be used widely: by government and workers alike to gain a better understanding about where the issues lie; by umbrella companies and the industry to improve standards; and by policymakers and advocates to work out where best to direct energy and resources going forward.”
Top 10 umbrella companies
Are you actively looking for an umbrella company, or you don’t think your receiving the level of service you should from your current umbrella? Look no further! We have a top 10 umbrella companies list, and they’re all FCSA accredited. Check them out – some have awesome offers on at the moment.