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Choosing a compliant umbrella company is critical if you want to ensure that your taxes are paid correctly and avoid getting into trouble with HMRC. The risk of engaging with a disreputable umbrella company, other than non-compliance, is the prospect of future unforeseen tax liabilities and potential of reputational damage to your agency.

The Government’s response period for replies to their “Tackling non-compliance in the umbrella company market” consultation closes on Tuesday, the 29th August 2023, which provides an opportunity for interested parties to submit their observations regarding the current state of the payroll industry. Facilitated by a combination of representatives from HM TreasuryHMRC and the Department for Business & Trade, the consultation is widely considered The Government’s latest attempt to stamp out any form of non-compliance or tax avoidance in the sector.

DASA Umbrella clearly supports the aims and aspirations of the consultation and applauds any initiative which helps create a level playing field so that all providers can operate fairly and openly. Both agencies and workers remain confused by the current ‘laissez-faire’ nature of the industry whereby almost anyone can set themselves up as an umbrella company and begin trading immediately and without any form of licence, governance or legislative approval.

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The Dangers of Non-Compliant Umbrella Companies

We recognise that temporary recruitment agencies face an increasingly tricky decision when choosing an outsourced umbrella company to add to their PSL (Preferred Supplier Lists) or to recommend to their contractors. It is estimated that there are now over 800 umbrella companies trading in the UK, with the vast majority holding no recognised compliance credentials or audit standards.

Despite this, they offer increasingly seductive terms to consultants in an attempt to lure them into a business relationship which will often only expose the agency and their workers to the risk of non-compliance, future tax liabilities and reputational damage. The reality is that if an umbrella company offers gross-to-net take-home pay figures in excess of seventy percent then they are undoubtedly utilising some form of illegitimate calculations to derive this figure.

Equally, consultants and agency owners should be wary of being promised ‘sweeteners’ in the form of inflated rebates, commercial enticements or even hard cash, no matter how attractive these might seem. Ultimately, the flow of monies throughout the assignment supply chain originates from the hard graft of the worker and all fees, deductions and payments are taken directly from their pay packet.

Quite apart from the legality of effectively taking money from a worker’s wages, there is a massive moral issue too, which the payroll industry has hitherto struggled to get to grips with. The distinction between compliant and non-compliant providers has always been blurred, but in recent years it has become increasingly difficult to identify those ‘clean’ umbrella companies who want to do the right thing and those dodgy practitioners who exist purely to extort as much profit as possible via in the hope that they won’t get caught.

Tackling The Issue of Non-Compliance

The root of the problem stems from the fact that the umbrella sector remains unregulated and free from any genuine and independent policing. Despite the best efforts of both the FCSA (Freelance & Contractor Services Association) and Professional Passport to provide a list of accredited and supposedly reputable umbrella companies, only a relatively small number of providers undertake their audits either due to cost or the fact that they are simply not interested in being accredited.

As long as agencies continue to use or recommend non-approved umbrella companies, then the problem will persist and continue to cast a shadow on the industry as a whole. It should also be noted that only those umbrella companies who have passed either the FCSA or Professional Passport audit qualify for Trusted Partner status awarded by APSCo (The Association of Professional Staffing Companies).

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Paving the Way for Industry Compliance

DASA Umbrella has always embraced the need for compliance in the industry and is one of only a dozen or so payroll companies audited by both the FCSA and Professional Passport. These audits are both forensic and time-consuming and put huge demands on the company to ensure that they submit all of the evidence required to pass the stringent requirements of each accreditation. In the case of the FCSA audit, Naks Atheeq, DASA Umbrella’s Finance Director, commented:

The FCSA accreditation is massively beneficial to the payroll industry as it provides a benchmark by which all parties can distinguish between compliant and rogue providers. The ever-increasing popularity of contracting and the inevitable shift towards a regulated payroll industry ensures that it is paramount that legitimate providers can be clearly identified within a crowded market. As a business, DASA is honoured to be an FCSA member and to embrace the ethos of the organisation.

One of the primary objectives of the Government consultation focuses on the due diligence processes adhered to by all those in the assignment supply chain. From their perspective, proven acts of non-compliance, tax evasion, avoidance and outstanding liabilities should not just be the preserve of the umbrella company itself but also any entities engaged in the assignment supply chain.

This spreading of responsibility was avidly discussed at a recent seminar organised by Lawspeed and attended by numerous recruiters who were understandably concerned that they might be unwittingly liable for the transfer of debts and/ or liabilities racked up by a non-compliant umbrella company.

One has sympathy with the recruiter’s adopted position, especially if an agency has diligently selected an umbrella company from either an approved and accredited list or having conducted their own internal compliance checks. Sadly, even these measures are sometimes not enough to protect the agency (or their workers) from the unscrupulous practices of rogue umbrella companies.

A Trustworthy Payroll Company

In the final analysis, DASA Umbrella has structured and positioned the company around its compliance strategy and has embraced all available accreditation to demonstrate to agencies that it remains one of the most trustworthy and reputable payroll companies in the UK. DASA Umbrella’s commitment to transparency and best practice is also bolstered by over one hundred positive Google Reviews from contractors satisfied with the service they receive.

By way of conclusion, agency owners, directors and consultants should take all of these factors into account when choosing an umbrella company as it will enhance their businesses in the long run. DASA Umbrella has invested heavily in all facets of compliance and is proud of its reputation as one of the UK’s most honest and transparent umbrella companies.

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