New government umbrella company consultation suggests regulations could be on the horizon

The government has launched an open consultation into the role of umbrella companies in the labour market to better understand the industry and how umbrellas interact with the tax and employment rights systems. The consultation requests multiple stakeholders’ input by answering a series of questions, including contractors, recruitment professionals, and end-hirers. In this article, we summarise the consultation and explain how you can help contribute to the sector’s expected developments next year.

Call for Evidence: umbrella company market

Call for Evidence: umbrella company market is a new consultation opened by the government in November 2021. The 37-page document provides an overview of the umbrella company marketplace and lists concerns that stakeholders have raised on the industry’s current state. It also includes information about what the government has already done to tighten rules and enhance barriers for tax avoidance schemes targetting UK workers. The government described the consultation as a way of trying to identify “the role that umbrella companies play in the labour market, and how they interact with the tax and employment rights systems”.

Most importantly, unlike previous guidance about umbrella companies, this consultation is the government’s way of seeking information directly from those who have experience with umbrella payroll. The purpose of the consultation is to explain “concerns that have been raised by some stakeholders, as well as government action already taken to tackle tax non-compliance and improve protection for workers”.

Within the document are 38 questions explicitly targeted at contractors, freelancers, agency workers, temporary workers, staffing agency representatives and end-hirers.

How can umbrella employees contribute towards the consultation, and why should they?

For the consultation to be a success, the government must receive as much intel on umbrella companies as possible. If you’re a stakeholder within the industry, please spare a few minutes and participate. The more interaction with the consultation, the higher the chances of regulations working in every supply chain entity’s best interests.

If you are a contractor, freelancer, temporary worker or agency worker, you can contribute by answering the questions that appear on pages 17 and 18 of the official Call for Evidence document.

If you work in recruitment or as part of an end-hirer of temporary workers, you can contribute to the consultation by answering the questions that are on pages 12, 13 and 26.

To submit your response, please email them to umbrellacompanyevidence@hmtreasury.gov.uk. Alternatively, you can send your answers in the post to: Umbrella Company Call for Evidence, Personal Tax Team, HM Treasury, 1 Horse Guards Road, London, SW1A 2HQ.

The consultation is scheduled to close on the 22nd February 2022, and the government will share the findings later.

Ciaran Woodcock, a Director at Churchill Knight Umbrella, shared his thoughts on the government plea for help from multiple stakeholders within the umbrella company sector. He said:

“Compliant umbrella companies provide a valuable payroll service within the temporary staffing marketplace. However, they’re not perfect. It’s very encouraging to see the government ask for help with umbrella companies. By asking those who use or refer to them, they will get a fair understanding of how they operate, as well as identifying opportunities for improvement.

This is an excellent opportunity for the government to identify the good practices within the sector and spot any unethical behaviour from supply chain members. Hopefully, the consultation will help protect contractors and freelancers and make it even harder for tax avoidance schemes to exploit UK workers.

If you use an umbrella company for your payroll or work in the supply chain, I actively encourage you to participate in the call for evidence. This is an opportunity like I’ve never seen before. It is the perfect chance to share your thoughts on the positive and negative aspects of the umbrella company marketplace.

Is there anything you don’t like about umbrella companies? Do you have any suggestions to improve umbrella companies? Have you used an umbrella that provided a service above all others? Do you have any compliance concerns about umbrella companies, staffing agencies or end-hirers?

Please – answer the questions and share your thoughts to improve the future of payroll for temporary workers.”

Please keep visiting the Churchill Knight blog for the latest developments.

Why are stakeholders calling for the umbrella company marketplace to be regulated by the government?

Umbrella companies have never been in such high demand, and new payroll providers appear to be entering the crowded marketplace every week. While most of these are fully compliant with HMRC’s rules and regulations and operate PAYE payroll, a small number are facilitating tax avoidance, which has damaged the industry’s reputation. For example, earlier in the coronavirus pandemic, mini umbrella company fraud (MUC) caused outrage throughout the entire sector. Hard-working covid test centre employees found themselves being paid by unethical offshore providers – entirely against their knowledge. To summarise, dishonest recruitment professionals appeared to be referring their candidates to untrustworthy payroll providers in exchange for financial rewards.

As things stand, there are no official government regulations within the umbrella company sector. The lack of rules has resulted in several unscrupulous and unprincipled payroll providers targetting vulnerable temporary workers and tricking them into thinking using a scheme was the best option for their circumstances. Industry stakeholders argue that government intervention and the introduction of strict regulations would offer extra protection to the UK’s temporary workforce and make it more difficult for criminals to facilitate tax avoidance.

While there are no government regulations, the Freelancer and Contractor Services Association (FCSA) is a self-regulatory body that offers a well-respected accreditation to umbrella companies that can prove they operate in full compliance with HMRC rules and regulations. Churchill Knight Umbrella is proudly accredited by the FCSA and believe the FCSA is doing a marvellous job ensuring its members abide by the highest compliance standards in the industry.

Interestingly, the FCSA are in favour of stricter rules, and an article on the FCSA’s website states:

“The FCSA has long campaigned for regulation and specific legislation that further protects the agency and contractor workforce. There is now a clear statement from Government that umbrella regulation and the route to policing that regulation is on its way.”

While supporting the government’s step towards regulating the industry, the FCSA has made it clear they are against banning umbrella companies – an idea put forward by some stakeholders. In an article on the FCSA’s website, they said:

“The banning of umbrella companies would simply create an even greater compliant and ethical void that would ultimately make the outsourced worker even more vulnerable.”

The importance of using a compliant umbrella company

Using a compliant umbrella is critically important to ensure your tax affairs are up to date and you are paid in accordance with HMRC’s rules and regulations. You could be heavily penalised if you are paid by a non-compliant umbrella company (even by mistake). Here are a few tips to help you choose a trustworthy umbrella company.

• Always use an umbrella company that’s based in the UK. There has been an increase in offshore intermediaries targetting vulnerable UK-based temporary workers. Often, these companies operate from known tax havens such as the Cayman Islands and the Isle of Mann.
• Check you will receive PAYE – Pay As You Earn payments from the umbrella. This is HMRC’s tax system. Some unscrupulous providers advertise inflated pay retention to entice contractors to register with them. Do not be tempted to use such an arrangement because the consequences could be severe.
• Only use an umbrella company that is accredited by the Freelancer and Contractor Services Association (FSCA). The FCSA is the UK’s leading professional body committed to ensuring the supply chain of temporary workers is compliant. For an umbrella company to obtain FCSA accreditation, they must successfully prove they operate compliantly by completing several audits and assessments. The FCSA’s strict Codes of Compliance are available on their website.
• If an umbrella company is offering to pay you strangely – don’t use them. Compliant umbrella companies operate PAYE. However, some are tax avoidance schemes that will pay you in unusual methods such as loans, credits and shares – all to help you avoid tax.
• Don’t ever feel pressured to use a specific umbrella company because your agency or hirer tells you to. Responsible recruitment agencies will have a dependable Preferred Supplier List (PSL) that will feature compliant umbrella companies for you to choose from. However, it should always be your choice. If you feel pressured into using an umbrella, raise your concerns with a senior staff member at your agency or hirer, or consider looking elsewhere for your next role.
• Carry out thorough due diligence. Check the umbrellas you’re interested in are established, have a good reputation, have an up to date website, have received good reviews, and has a long trading history. Not all, but many dodgy payroll providers have not been around long and do not have a long trading history.

Join thousands of happy contractors with Churchill Knight Umbrella

Churchill Knight Umbrella is an FCSA accredited payroll provider that prioritises compliance and customer service. Backed by professionals with over 20 years of industry experience, we help thousands of contractors and freelancers get paid on time every week. And, we look forward to working with many, many more.

As a Churchill Knight Umbrella employee, you’ll not only be using one of the market-leading umbrella companies. You can also take advantage of free £25 million insurance cover, access to our time-saving state-of-the-art app, employee benefits including statutory pay, no hidden costs, exciting rewards when you refer your friends, and more!

To find out more about our umbrella service or request a tailored take-home pay calculation, please complete the short form on this page or give our friendly Consultants a call on 01707 871622.