Umbrella companies have been under increasing scrutiny in recent years. Many have drawn in huge numbers of contractors with the promise of dealing with all the tax issues they’d rather avoid. It makes a lot of sense on paper, and helps to avoid IR35 problems.
The problem is that many of these umbrella companies have not been doing so stellar a job. HMRC has been investigating them for years in response to some of the more unscrupulous operators attempting to aggressively use travel and subsistence reimbursements for tax relief. In 2010, the issue of Umbrellas using offshore tax havens to lower their tax liability was a hot topic and, in 2011, Cameron announced investigations into their use of travel and subsistence (again), making employees directors and under recording hours worked.
The pressure doesn’t seem to be letting up either. The Labour MP for Leyton and Wanstead, John Cryer, has secured himself a parliamentary debate on the regulation of Umbrella Companies. Although he was unable to secure a spot on the main stage, the debate will take place somewhere else in Parliament (something like the equivalent of the acoustic stage of a rock festival). Despite these debates not attracting huge numbers, a Minister is required to give a response.
The issue at hand here is that if these Umbrella Companies are falling foul of HMRC, then their employees (innocent freelancers and contractors) are the ones who could end up owing unpaid tax. It will be a great shame if theses Umbrellas are found to be taking advantage of their clients, and could end up damaging their businesses in a big way. Better and more stringent regulation seems to be the way to go in this case, and would hopefully ensure these companies play by the rules.
It is a good thing that this issue is continuing to be highlighted (and that Labour are making some noise about it too). Many Umbrellas occupy some pretty murky legal water, and it can be hard to really know exactly what they’re doing with your earnings.
Photo by Ian Parkes