How can contractors spot non-compliant umbrella companies?

When perusing umbrella companies, it’s important that you know what to look out for. It’s vital that you’re not lured into working through an unscrupulous disguised remuneration scheme masquerading as a compliant umbrella provider. As you’ll no doubt know already from the Loan Charge debacle, working through a tax avoidance scheme, even accidentally, can result in tens or even hundreds of thousands in retrospective tax bills further down the line.

But how can you tell the difference between a compliant umbrella company and a tax avoidance scheme? 

Let’s take a look at the hallmarks of a compliant umbrella company first. 

FCSA accredited

One of the most important signs of a compliant umbrella company is accreditations from industry bodies such as the FCSA. The FCSA ensures that members provide compliant services, trusted advice and employment to the highest level of professional and ethical standards in the UK. Gaining FCSA accreditation is a rigorous annual process and requires umbrella companies to strictly adhere to the codes of compliance.

Genuine employers

Remember, when working via an umbrella you technically become an employee of the provider. A compliant umbrella company will provide you with a contract of employment, which then entitles you to employment benefits and protections such as sick pay, and maternity or paternity pay.

Positive Trustpilot reviews

Most compliant umbrella companies have some way of leaving a review, and a popular platform for doing this is Trustpilot. It’s therefore worth doing your homework and reading up on these to get a clear picture of the quality of the service they provide and how other contractors rate them.

Contactable 

Any trustworthy umbrella company should pride itself on being easy to contact. You shouldn’t need to spend hours searching for phone numbers or email addresses in order to ask a quick question. A good umbrella company will provide simple ways to get in touch and may even give you estimates on how long you can expect to wait for a response. This is something we care about deeply at Parasol, which is why we publicly show our current response times here on our website.

Now we’ll touch on the common characteristics of a tax avoidance scheme, which are in your best interests to steer well clear of.

Unrealistic take-home pay and low tax rates 

Perhaps the most common signs of a tax avoidance scheme are the too good to be true promises made to increase your take-home pay (to somewhere in the region of 85%) and lower the amount of tax you pay significantly. 

All compliant umbrella companies adhere to the same HMRC rules. If your take-home pay with one will be much higher than another, you should ask yourself why. Of course, legitimate tax planning such as paying into a pension scheme can reduce your tax bill and, depending on your SDC status, you may be able to benefit from tax relief on certain expenses. However, anything other than this is likely to be tax avoidance and will attract the attention of HMRC.

No FCSA accreditation

If the umbrella company doesn’t have any accreditations such as FCSA or doesn’t appear on the Preferred Supplier List of your recruitment agency then it’s a sign they could be trying to avoid scrutiny.

Concealed company information 

Tax avoidance schemes are usually very difficult to contact and offer little information when searched on Google, usually because they don’t stay open for long enough and benefit from operating in the shadows. Try punching in the business name on the Companies House website and if you find it difficult to track the company down then you might want to think carefully about proceeding with them.

Low or no online reviews

A tax avoidance scheme will usually avoid having a Trustpilot account or any other platform on which it can receive reviews. This is an attempt to prevent evidence of their extremely poor services from being seen by other contractors until it’s too late. Don’t be too swayed by reviews on the company website either, nor testimonials from businesses the firm has claimed to work with – these are easy to fabricate. 

Contractors know all too well that tax compliance is vital, which is why it’s handy to know how to spot the firms that endanger yours. As the market-leading umbrella company for compliance, Parasol have been helping contractors for over 20 years and are one of the most trusted umbrella companies in the UK.