The Low Incomes Tax Reform Group (LITRG) has recently released a report that spotlights umbrella companies. With changes to IR35 legislation increasing demand for payroll intermediaries, the report sets out to provide valuable information for contractors, freelancers and agency workers. We’ve summarised the report below, and it makes for some interesting reading.
Labour Market Intermediaries – a unique insight into the umbrella company marketplace
Written by the LITRG, part of the Chartered Institute of Taxation, the report published on 24th March 2021 is officially entitled ‘Labour Market Intermediaries: a technical report outlining how umbrella companies and other intermediaries operate in the labour market and the implications for workers who use them’.
It sets out to cover the umbrella company marketplace as a whole. It breaks down some of the most important factors to consider when choosing an umbrella company and associates legislation.
In total, there are 11 chapters covering a number of significant topics. These include an overview of the industry, umbrella company benefits, travel expenses, disguised remuneration schemes and the risks associated with tax avoidance, complexities in the marketplace, regulatory bodies, recent issues (including the Loan Charge), and more.
Choose a compliant umbrella company, and you have nothing to worry about
The report provides a thorough insight into payroll intermediaries and their role within the temporary workers’ supply chain. It’s remarkably detailed, and we cannot remember coming across something so in-depth before. The overall message appears to be reasonably clear – use a compliant umbrella company for your payroll (PAYE), and you have nothing to worry about. However, if you use a disguised remuneration scheme, such as a loan scheme, you could be heavily penalised by HMRC.
The Labour Market Intermediaries report is certainly not damaging for umbrella companies, but it provides a unique insight into the importance of using a compliant umbrella offering Pay As You Earn (PAYE). The LITRG “try to reconcile the very bad press that umbrella companies get with the fact that the authorities appear to consider them a legitimate part of the modern labour market”.
The following is a quote from a contractor-focused case study in chapter 4:
“My experiences [with umbrella companies] have been positive and I’ve never had any problems with my pay. It just kind of ticks along in the background and I can get on with my day job. Maybe I’m lucky – or maybe the people who get stung by umbrellas are unlucky, I don’t know.”
Umbrella companies do not deserve their poor reputation
The head of the LITRG, Victoria Todd, shared her thoughts on the 149-page report:
“This report sheds light on an under-researched part of the labour market.
Many people think that umbrella companies exist only to exploit the tax system and lower-paid workers. That is not the case. They perform a number of useful and legitimate functions such as taking on the payroll and HR function of temporary work agencies who can’t or won’t do this in-house and providing an alternative route for freelance contractors who would otherwise have to work through a limited company.
However, there is a minority of umbrella companies whose bad practice and non-compliance sadly tarnishes the rest of the industry. This includes some set up specifically to operate disguised remuneration schemes.
One of the outcomes of the public sector off-payroll changes in 2017 was a mass shift of contractors into loan arrangements via umbrella companies. This did not end well. Serious and urgent work is needed to prevent this happening again with the private sector off-payroll changes being introduced from April 2021. A single enforcement body for employment rights, as is being considered by the Government,3 would help but is not on its own sufficient.
While disguised remuneration is very topical, in order to understand the experiences of most umbrella company workers, it is important to look beyond it. What we found when we did that was very interesting and thought-provoking and will certainly help shape our future work in this area.
Looking across the landscape in a balanced way, it is clear from our research that the general poor reputation of umbrella companies does not uniformly match the reality and is not deserved by many in the sector. It is important that this is acknowledged and that the balance is redressed.
We hope this report will be used widely: by government and workers alike to gain a better understanding about where the issues lie; by umbrella companies and the industry to improve standards; and by policymakers and advocates to work out where best to direct energy and resources going forward.”
Umbrella Company UK is the first-choice for hundreds of contractors
If you’re looking for a compliant umbrella company you can trust, you’ve come to the right place. Umbrella Company UK is proud to be accredited by the FCSA, and we’re dedicated to ensuring our employees have a seamless experience with us.
To find out more about Umbrella Company UK and why we’re the first choice for hundreds of UK contractors, please send us a message, give our friendly team a call (01707 669023), or request a free tailored take-home pay calculation here.