[Money Monday] Government deals another blow to Umbrella Companies

The UK Government doesn’t seem to be too fond of Umbrella Companies at the moment. After announcing the closure of the offshore EBT loophole late last month, David Cameron’s rag-tag band of misfits has now issued a further statement on what it believes to be unscrupulous behaviour by some Umbrella Companies.

In a statement issued January 1st, HMRC announced they are going to be specifically targeting Umbrella Companies which attempt to circumvent the National Minimum Wage through -

Paying subsistence expenses rather than travelling expenses;
Classifying workers as directors;
“Holiday Pay adjustments”; and
Under recording hours worked

Much like offshore EBTs, these are all slightly dodgy accounting methods that some Umbrellas use to save money, thereby providing their clients with a better rate of return. HMRC is taking a combative tone with those involved, saying of the schemes -

“They have clearly been constructed with the express intention of operating contrary to the intention of Parliament and as such HMRC will identify businesses seeking to circumvent the NMW and take appropriate action.

“Where compliance action also identifies non-compliance with tax legislation, Employment Businesses and umbrella companies run the risk of having their dispensation revoked in addition to paying arrears of tax and National Insurance together with interest and, where appropriate, penalties.”

Serious stuff. Umbrella Companies are having a tough time of it recently. Just last week we received word that two organisations – Sunday Solutions and Bradbury & Co. – have gone into liquidation. Sunday Solutions appears to be a particularly wonky operation – having failed to pay the tax of around 1,500 clients. The scheme’s failure now leaves it’s members individually responsible for their tax payments – payments they believed had already been made.

If you think the Umbrella Company you are using is employing suspect methods, you can contact HMRC in confidence – and may we suggest you find a new accounting solution, too? The full statement from HMRC is available here.

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Steven@Parasol

But this is good news for umbrella companies surely?

This is great news for those umbrella service providers who have worked hard to improve standards within our industry and encourage transparency and best practice.

Before the legislation was introduced at the beginning of the month, you could argue that vulnerable temporary workers were being exploited as a result of some umbrella companies and recruitment agencies using the tax relief on travel and subsistence expenses to top up pay to the NMW level when NMW is a legal right for all workers. Travel and subsistence is reimbursed as tax relief for temporary workers so that they are not out of pocket for taking a job. It is vital that the UK temporary workforce is supported with things such as this as they make such an important contribution to the UK economy. It is important that temporary working remains an attractive option for workers in the UK.

Parasol has never operated in this way and has always welcomed legislation that is to the benefit of our industry. For umbrella companies at the low skilled end of the market it now creates a level playing field. For all umbrella companies, it stamps out another of the poor practices that tarnishes the whole industry. Positive news all round.

http://www.facebook.com/jon.norris3 Jon Norris

Well I’m glad to hear Parasol is acting more responsibly than some.

Given the Government’s new-found interest in Umbrella Companies, are you guys concerned that they are going to find ways of reducing your tax efficiency even further?

Steven@Parasol

Morning Jon

Not at all, we are actively engaging with both the OTS and HMRC as Parasol and as a founder member of the Freelancer and Contractor Services Association (the only accreditation provider supported by REC, APSCo and HMRC due to its independent audit by a big four auditor). None of the measures that have been or are being introduced are to the detriment of a correctly structured umbrella company with a proper employment model in place.

What they do do, and quite correctly in our opinion, is prevent the exploitation of vulnerable workers at the other end of the market. This includes the forthcoming AWR.

Correctly structured umbrella companies will remain a relevant and efficient model for contractors and freelancers in business on their own account. As will solutions such as yourselves and our sister company ClearSky Accounting.

It’s all part of encouraging a UK flexible workforce that makes a massive contribution to the UK economy.

timothytim

I was unaware FA did financial products? Are you guys branching out?

And Steve, please stop posting under every single article that mentions umbrellas telling us how fabulous your pals at Parasol are. Constantly rushing to defend every tiny thing makes you look very nervous indeed.

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Jon Norris

Author's website: Brightonist

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