Umbrella solutions- where a company acts as your employer and intermediary between contractor, agency and end client- have been in operation for many years. Increasingly popular due to their efficiency, simplicity and benefits for those working on short-term or multiple assignments, lack of direct government regulation has allowed a certain number of unscrupulous companies into the market. Looking legitimate at a casual or untrained glance, their attractive-looking but non-compliant solutions can leave employees at risk of financial losses or even prosecution.

Concerned about the scale of non-compliance in the umbrella company market, and the detrimental impact that this has on workers, taxpayers and the labour market, the government is moving to introduce tighter checks and regulations. Welcome news for all legitimate umbrella solutions providers and those using them. 

Let’s take a look into the known details and implications of the government’s scrutiny. 

What action is the government taking? 

Following a major consultation exercise last summer, the government has published an initial statement giving first indication of their proposed statutory due diligence requirement. 

They confirm: “To support workers and businesses that use umbrella companies, HMRC will publish new guidance later this year, including an online pay checking tool to help umbrella company workers check whether the correct deductions are being made from their pay.” 

While we await further details and dates, this clarification is a big step forward. Most people are not tax experts; an updated online pay checking tool will be a clear, simple way that everyone being paid through an umbrella company can receive immediate confirmation their payslips and tax affairs are in order. 

Should I just wait until the new tool and guidance launch? 

No. If you are already being paid through an umbrella company, this is the time to follow our simple checks to ensure they are legitimate. Delaying could put you at risk of financial losses, risks and punitive action (as the responsible party in law) from HMRC. When the statutory guidance and checks are published, fraudulent umbrella companies could suddenly cease trading, leaving employees suddenly in limbo, with no salary coming through. 

If you are considering taking up an umbrella solution, don’t lose out on the many efficiencies and benefits they offer by waiting. Prospective or current umbrella employee, follow our guidelines for peace of mind that the umbrella company you are with, or considering, is fully legitimate and compliant. 

Simple, effective action you can take now 

• Avoid any companies offering “free” payroll services. We all like a good deal, and most umbrella companies will strive to offer just that. However, completely “free” services indicates they are generating revenue from other, hidden sources- which could even end up being you. Follow the old adage: “If it sounds too good to be true…”. 
• Avoid any companies suggesting tax savings. Again, this could sound attractive on first glance, but in this context tax savings usually means tax avoidance schemes, putting you at risk of illegality, bills and fines.  
• Check the government’s “name and shame” list. This useful HMRC checklist [link: https://www.gov.uk/government/publications/named-tax-avoidance-schemes-promoters-enablers-and-suppliers/current-list-of-named-tax-avoidance-schemes-promoters-enablers-and-suppliers] provides a list of known current tax avoidance schemes, promoters and suppliers. Be aware it can never be comprehensive; slow to be updated, and companies only remain on the list for 12 months. 
• Check your choice is FCSA accredited. The Freelancer & Contractor Services Association (FCSA) is the UK’s leading membership body dedicated to ensuring the highest standards for the freelance and temporary labour market. Your assurance of professionalism, trustworthiness, transparency and accountability (give it a try by searching on it for ICS Accounting!) 
• Check your payslip for changes or anomalies. Firstly, ensure regular deductions include Income Tax, National Insurance contributions, workplace pension contributions and student loan repayments (if applicable). Changes of umbrella company name, variations in pay, a separate payment which you are told is not taxable, such as a loan, more money paid into your bank account than is shown on your payslip, or a payment from someone other than your umbrella company can all be signs of tax avoidance. 
• Don’t be put off an umbrella solution! The vast majority of umbrella providers are legitimate, ethical, and fully compliant, and the practice offers multiple benefits to contractors. Do your own due diligence with the easy steps above. If you suspect any non-compliance, contact HMRC, and all FCSA-accredited umbrella solutions providers will be happy to give you advice. 

Can ICS Umbrella help you? 

Fully FCSA-accredited since 2017, ICS Umbrella provides workers with all the benefits of being an employee whilst working on various assignments. Chat to us online or request a calculation by clicking here and completing this short form. 

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