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.