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Calls to ban umbrella companies highlight how badly misunderstood this industry is

An industry expert says calls to ban umbrella companies altogether are misinformed

In late July, when the Trades Union Congress (TUC) called for a ban on umbrella companies and their use of agency workers, people like me who work in the industry were sadly unsurprised at their sweeping generalisation of umbrellas.

Time and time again, compliant and ethical providers have found themselves lumped in with the tax avoidance schemes and fraudulent models that the industry itself has been working to rid itself of. 

Scrutiny is nothing new to umbrella businesses, and rightly so. Many like Parasol spent years educating end hirers and fee payers on how to manage the off-payroll IR35 reforms effectively, ensuring those who are genuinely outside can remain so, and those who are inside receive the full employment rights they deserve. 

Regulation is needed, not an outright ban 

However, those pedalling tax avoidance under the guise of umbrella schemes are still finding their way into the sector – but the answer to the problem is proper regulation with enforcement, not a total ban on umbrellas. 

This is the point that the TUC missed, even after commissioning the Low Incomes Tax Reform Group, who produced a well-balanced report, which requested further regulation while recognising the efforts of compliant umbrella firms. The long-term view of the TUC has historically been to place a ban on all umbrella companies and unfortunately, this report has done nothing to alter that viewpoint. 

A ban on umbrellas would cause more issues than it would solve and have a devastating impact on workers themselves. Firstly, the logistics of such a move would be complex to implement and clarifying the arrangements and status of individual workers could take weeks, if not months. 

Secondly, abolishing umbrellas would remove a vital part of the UK’s employment industry, which supports many thousands of workers each year. They’re typically skilled professionals taking their first step into self-employment, who still require the security of sick pay and holiday pay, which all ethical and compliant umbrellas offer as standard. 

Value of umbrella workers mustn’t be undermined 

In my mind, that’s one of the huge benefits umbrella employment can offer – giving people an established platform and support to start working for themselves, with wages paid via the straightforward PAYE model, and none of the paperwork and responsibility of running a business. 

Umbrella workers make a significant contribution to the UK’s economy, and rather than making their lives difficult, we should be doing more to protect them. Unfortunately, too many are still being caught up in tax avoidance schemes that promise sky-high take-home pay rates but end up leaving workers on their own with a huge tax bill to pay.

There are many ways to check whether an umbrella company is compliant, or not as the case may be. The first port of call for anyone bringing an umbrella company into the supply chain should be to carry out their own due diligence. This article will prove useful.

There are also already industry bodies out there such as the Freelancer & Contractors Services Association (FCSA) who are dedicated to raising industry standards. These bodies can also remove the complexity, time and cost by ensuring their members comply with robust codes and in many cases, are independently audited by legal and financial experts who have the specialist knowledge in this area.

Non-compliant umbrella companies must face consequences

But more still needs to be done, starting with the existing rules designed to stamp out malpractice being enforced properly, and fraudulent umbrellas facing real consequences once caught. 

Efforts to support this cause are ongoing, with industry experts drafting a series of proposals called ‘Umbrella companies – call for regulation’ to increase standards across the sector, and David Davis MP tabling a proposed amendment to the Finance Bill, which would help close the door on tax avoidance within umbrellas. 

Once we start naming and shaming those who aren’t acting properly, this will inevitably deter acts of fraud and boost compliance, bringing tangible benefits to umbrella workers with better protection from an employer adhering to best practice. 

A targeted approach to the problems we’re battling is the best way forward, and we need organisations like the TUC and the Government to recognise that. So far, they continue to suggest nuclear solutions, like a ban on umbrellas, for issues that are far more niche and complex. 

Once they accept that agency workers at ethically compliant umbrellas are already protected with full employment rights, we will be in a better place to tackle the problem of tax avoidance in the umbrella industry once and for all.

Clarke Bowles is the Director of Strategic Sales at one of the UK’s leading umbrella companies, Parasol.

By Clarke Bowles

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9 thoughts on “Calls to ban umbrella companies highlight how badly misunderstood this industry is”

  1. Ray Pooley

    I used Parasol for many years as an IT contractor prior to retirement. I didn’t see myself as self employed but as a temp working for Parasol who would process my income on a full PAYE basis. It gave me the peace of mind that I wasn’t going to be hounded by the revenue under IR35. I didn’t want the hassle of Companies House either and managing all that malarky every year. Brollies are brilliant and serve a great purpose to many people. Of course you are dealing with the Unions here. They would happily ban contracting all together and make everyone subscribe to them. I have a very low opinion of unions generally. I used to be in one before I went contracting. They never served any purpose in my experience.

  2. admin_junkie

    The article doesn’t make it clear that sick and holiday pay are paid at the statutory rate and funded from the deductions the brolly has taken from you as “employment costs”.
    The contractor could put aside funds themselves or take our insurance.
    Unions can be useful, when my employer went into receivership and everyone was laid off, a Union that only had a few members in the company went to tribunal and got everyone an addition 3 months statutory pay. Most of the time you don’t need them but they can be very helpful when things go wrong.

  3. Gary Andrews

    Both umbrellas and Unions have their place, banning either would be an extremist viewpoint rather like banning real contractors.

    The problem with fraudulent umbrellas is that most contribute to the Tory party so are untouchable by the revenue. If anything their directors are rewarded with gongs and lucrative PPE contracts.

    • Tempo

      If you know who these companies are perhaps you can tell us?

      The way I see it, the only people benefiting from fraudulent umbrella companies are the people using them and the umbrella company itself. The loser is HMRC and public services.

  4. Graham

    Oh how pleased I was when I saw he was a Parasol director. Once you are past sign-up, their service is shambolic. What is more disconcerting, is that despite this, they are still one of the best out there.
    Umbrellas need regulating properly, not banning. Yes, they serve a purpose, but someone needs to get a grip on their standards as at present, they have very few.

  5. Andy

    They should absolutely be banned they are nothing more than crooks and leeches looking to screw/scam workers. There would be no need for a whole support industry trying to correct all of their ‘misdeeds’ if they were gone. They can easily be replaced by online software at a fraction of the cost to workers. Software doesnt hold your pay for a week before passing it on! It also doesnt withhold part of your pay to ‘look after it for a rainy day’…in their bank accounts!!

  6. Antony Craven

    If you are a contractor umbrellas have no value add that you cannot get from an accountant.
    Why on earth has Contractor Weekly given air space to a biased exponent with no balance? And you have allowed him to make sloppy comments about “compliance”. There is no compliance because there is no regulation. And the idea that there are ‘stilll’ out of jurisdiction, fraudulent umbrellas out there as a minority is a nonsense. The market is awash with them, 50,000 set up offshore in 5 years. This will lead to SFO investigations into the clients so they are NOT acting “risk averse” at all.
    The last thing is the function they perform – to manage On Payroll. The end client can easily do this as can the agent. When contractors are offered On Payroll, PAYE work they should be given the option of choosing. Being forced into an umbrella is illegal (as are quite a lot of the practices of whatever this guy thinks are “compliant” umbrellas).
    Contractor Weekly needs to get its act together. It’s not a mouthpiece for dodgy used car salesmen and shouldn’t be for umbrella companies. Otherwise it would be called Umbrella Weekly and I’d stop subscribing. Do some investigative journalism about how these dodgy companies are really operating on the margins and sometimes wholesale of illegality? That is what is impacting contractors.

  7. Bob Bobbins

    Of course the “Director of Strategic Sales at one of the UK’s leading umbrella companies” is going to paint a rosy picture of the umbrella industry!

    Did Parasol pay to get this published?

  8. Happy Brollie

    This is pure BS

    No need for brollies

    Just another middleman taking money off the worker

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