As if choosing a compliant umbrella company isn’t difficult enough! There are over 500 umbrellas in the UK, and while most are compliant, some are tax avoidance schemes preying on vulnerable contractors and freelancers. In an article by Contractor UK, a ‘sham’ accreditation body has been identified. If you’re a contractor or freelancer seeking a compliant umbrella, please read this article carefully. It will help you pick a compliant umbrella and identify the regulatory bodies you can trust and those you should ignore.
Peak PAYE Ltd, a payroll provider (umbrella company) named and shamed by HMRC, has been promoting an accreditation on its website from ‘The Institute of Freelancing & Contracting Professionals’.
Despite some bold claims to promote compliance, a director at IPSE (The Association of Independent Professionals and the Self-Employed), Andy Chamberlain, has never heard of IFCP. He told Contractor UK:
“IPSE has not been previously aware of ‘IFCP’ and is not therefore in position to verify its legitimacy, or otherwise.”
With some advice for contractors seeking a compliant umbrella company, Andy Chamberlain also told Contractor UK:
“We…advise contractors to take great care when choosing a provider. We would also add that contractors should be wary of any claims of accreditation from unverified parties.”
An adviser to the self-employed, who wishes to remain anonymous, warned contractors and freelancers about the IFCP. They said:
I [have been advising the self-employed for 12 years] and don’t know of anyone who works [at the IFCP].
And as far as I can [see]…no evidence of them [exists] on Companies House, and even their ‘links’ to their Twitter and LinkedIn profiles don’t actually take you anywhere. It’s a sham organisation – so contractors beware.”
In the Contractor UK article, the warnings continued. A high-profile professional within the sector, Lucy Smith, Managing Director at Clarity Umbrella, also warned temporary workers looking for a payroll provider. She said:
“When a contractor looks at a website and there is very little information available on the site, it [should] lead [them] to question why.
The website is very bare, says very little and would lead me to question what they have to hide.
If a….[provider] has nothing to hide then they should have no issues in explaining it all via the website.”
A specialist recruitment lawyer, Adrian Marlowe at Lawspeed, explained that the claims by the ICCC suggest the person behind the wording has a “sense of humour”. He said:
“Peak PAYE [being outed] by HMRC is highly topical as tax avoidance [is] very much back on the agenda [at HMRC].
But Peak PAYE’s website shows it is accredited by an outfit called the Institute of Freelance Contractor Professionals which claims to be [lots of good-sounding things] like ‘independently audited’, and ‘fully disclosed to HMRC.’ Etc. Etc. Someone clearly has a sense of humour.”
Which regulatory bodies can you trust?
Two well-known and respected bodies self-regulate the umbrella company sector – the Freelancer and Contractor Services Association (FCSA) and Professional Passport. Both organisations provide distinguished accreditations to payroll providers that can prove they adhere to HMRC’s rules and regulations. They are fully committed to providing a compliant and transparent service to their clients/employees.
If you’re looking for a compliant umbrella company, we highly recommend you choose one with accreditation from the FCSA or Professional Passport. These two organisations are very well-known and have actively campaigned in the interest of contingent workers for years and years.
You should ignore any other regulatory body with bold statements about a dedicated to protecting temporary workers. After all, creating a ‘sham’ accreditation body and claiming online that they stand for compliance is easy. Still, only the FCSA and Professional Passport have proven track records of protecting temporary workers and proactively trying to improve compliance within the contractor payroll sector.
The FCSA and Professional Passport have created strict codes of compliance that members must adhere to achieve accreditation status. The FCSA’s codes of compliance are available online.
Umbrella company checklist
To help you pick an umbrella company that will pay you compliantly (PAYE), here are some tips for contractors and freelancers:
- Only choose an umbrella company with an accreditation from the FCSA or Professional Passport.
- Request a take-home pay calculation and ensure the umbrella will process your salary with Pay As You Earn – HMRC’s employee tax system.
- Do not register with an umbrella until you have received a Key Information Document – a file that outlines your payments from the umbrella. Your agency should issue you with a KID, but if not, speak to your umbrella.
- Check online reviews and check the umbrella has provided temporary workers with positive experiences.
- Run a company background check on Companies House and make sure they have been trading for a decent amount of time. Some unethical umbrella companies have targeted temporary workers in the past, having only been set up a month or two before.
- Don’t pay over the odds to use an umbrella company. Usually, umbrellas will deduct a weekly margin between £15 and £25. If you are quoted a margin any higher than this – you may want to shop around.
- Work with your agency and ask if they have a Preferred Supplier List (PSL). The best, most responsible agencies will have a dependable PSL consisting exclusively of compliant umbrella companies, and this will make your search easier.
- Find out what extras are included in the umbrella company’s service. For example, you should expect to receive insurance, employee rights, Same Day Faster Payments, etc. However, some umbrellas may include little extras to make them stand out from the competition, including employee discount schemes and access to a state-of-the-art app.
Additional reading
The umbrellacompanies.org.uk website has been created to help contractors and freelancers make well-informed decisions regarding their payroll. You must conduct thorough due diligence if you’re looking for an umbrella. The following resources may help you with your search:
- Umbrellas explained
- Umbrella company example and walkthrough
- Advantages and disadvantages of umbrella companies
- Tax avoidance schemes
- Contractors should never feel forced to use an umbrella company
- Umbrella company fees: what do you need to know?
- HMRC Name And Shame Three Tax Avoidance Schemes
- 10 organisations every contractor and freelancer should be following
- Umbrella company examples – the difference between a compliant umbrella and tax avoidance scheme
- An Umbrella Company Comparison Guide
Top 10 umbrella companies
If you’re looking for an umbrella company or want to switch from your current umbrella because you’re not getting a good enough service, you’ve come to the right place. We have collated a list of our top 10 umbrella companies, which are accredited by either the FCSA or Professional Passport. It is also worth noting that some of our top 10 are currently running special promotions!
