Over 500 umbrella companies operate in the UK approximately, and there are over 1.77 million contractors in the UK. The industry is huge, and so is the business and the money involved in it.
There is an urgent need to regulate umbrella companies, and there are many reasons for it. The unregulated operations in the umbrella company sector pose a severe threat to the contractor workforce, especially after the IR35 legislation. Due to the legislative changes, the temporary workforce is more compelled to use umbrella companies than before.
There are a bunch of non-compliant, fraudulent, and clone umbrella companies in the market that use unethical ways to dupe temporary workers by running schemes that evade tax, ultimately creating legal challenges for the temporary workers.
These unethical arrangements harm the temporary workforce and cost the government millions of pounds in tax. For a temporary worker, it is tough to differentiate between a compliant and a non-compliant umbrella company. This is because even the non-compliant and tax-evading umbrella companies market themselves as fully compliant umbrella company.
Most times, the worker is entirely unaware of the tax-evading transactions done by the umbrella company and only comes to know when they are served a notice by the HMRC, thus putting them at risk of an HMRC investigation. Many Mini Umbrella Companies (MUC) have been reported recently. This further increases the risk for the temporary workforce and calls for an umbrella company regulation.
Prior to the IR35 legislation, there were many contractors who used to operate through a Personal Service Company (PSC) and never had to consider about appointing an umbrella company and thus they have little to no knowledge about how to look for a compliant umbrella company. The legislative changes have put many such contractors inside IR35, leaving them with no option but to only work through an umbrella company.
It is important that the temporary workforce gets support from the outside, especially from the government. An umbrella company regulation will make them feel secure and would allow them to focus on their work without worrying for an HMRC investigation or other legal challenges/consequences.
Amidst all this, it is also important to note that there are some really genuine and compliant umbrella companies in the industry who are professional, reasonable and in accordance with the law. The umbrella company industry as a whole is great but it's getting all the negative attention due to some fraudulent umbrella companies. An umbrella company regulation can help not just the contractors but also those genuine umbrella companies.
It is also worth noting that, umbrella companies are sometimes recommended by the Recruiters or agencies themselves, and the workers are not given the freedom to choose the umbrella company they want to work with. Those recruitment agencies have their PSL (Preferred Suppliers List), and some recruiters/agencies receive a commission from the umbrella company whenever a worker joins the umbrella company recommended by them. This, in our opinion, is very wrong and has been happening for a very long time, and it needs to stop.
Recently, the government called upon the umbrella company workers to share their experiences with the umbrella companies through a call for evidence. Not only this, but the government is also seriously attempting to regulate umbrella companies. It won’t be long before a government body regulates the umbrella company industry, for all we know.
There are membership bodies like Professional Passport and the Freelancer and Contractor Services Assciation (FCSA) who are self-regulatory bodies, but not government bodies. They try do their bit, but it may not be enough. Hence, there is a need for an independent and most importantly, government regulatory bodies. The new consultation indicates that the government is listening and considering regulating the umbrella companies in the UK.
We are fortunate to have teamed up with some excellent umbrella companies in the UK who can help the temporary workforce in a compliant way and in a professional manner.
Disclaimer
This article is for information purposes only. We strongly recommend taking professional advice or an expert opinion before reaching any conclusion. We have a team of experts who can help you with your queries, please feel free to review them. You can also write us an email at [email protected].