The Autumn Budget 2024 unveiled the plans to crack down on noncompliance in the umbrella world, raise National Minimum Wage, and increase Employer’s National Insurance Contributions to name a few. Like a line of dominos, these changes are sure to impact everyone in the contractor chain, including agencies and end clients. So what will agencies and end clients need to do in preparation for changes announced in the Autumn Budget 2024?
Make sure KIDs are created and provided straight away
Key Information Documents (KIDs) must legally be provided to new temporary workers who work through an agency or end client since April 2020, as outlined by HMRC. These documents must be produced in order to provide a reasonable illustration of what a contractor can expect to be taking home through working within the role.
With the uncertainty that has come through the upcoming changes to Employer’s National Insurance Contributions and the heightened level of responsibility places on agencies and end clients, it is imperative that contractors know what the upcoming changes mean for their pay. Agencies and end clients should start to look at reviewing the Key Information Documents they currently have in place in order to start preparing for the upcoming changes, with extra care around the addition to the Employer’s National Insurance Contributions.
Creating Key Information Documents must be done in tandem with the umbrella company the funds will be processed by in order to ensure the most accurate information is provided, including the margin charged by each umbrella company. A useful KID template can also be located on the HMRC website as a guide.
Create a PSL and carefully maintain it
Preferred Supplier Lists (PSL) have long been utilised by some agencies and end clients in order to have a level of control as to who they are sending funds to for their contractors to be paid. A PSL is set number of umbrella companies which a contractor must choose from in order to be paid for their work. Usually one is set up to ensure compliance and to limit the financial process of having to send amounts of funds to a large amount of umbrella companies.
With HMRC passing the buck to agencies to keep on top of PAYE compliance, it is no wonder that many agencies are now looking to introduce or reduce the number of providers on their PSLs.
With a set list of umbrella suppliers, there is less room for error, more peace of mind that contractors are choosing a compliant umbrella company, and the ability to form closer relationships with your select number of umbrella companies to overcome any hurdles which may crop up during the transition.
What to look for in a compliant umbrella company
Unlike employment businesses which require a high level of regulation, umbrella companies themselves are not yet regulated. This lack of regulation is something that has long since been criticised by both agencies and contractors alike. This only stresses the importance of finding the right umbrella companies to process your funds. So what should agencies and end clients be looking for?
One of the most influential signs that an umbrella company is compliant is if it is accredited by an awarding body, such as FCSA who have their own Codes of Compliance aimed at ensuring that each of their members adhere to a strict level of compliance in order to gain and keep their accreditation. Another such awarding body is Professional Passport, who also have a strict approval process for any umbrella companies wishing to join their membership. Umbrella companies have to work hard to keep their accreditation by undergoing yearly reviews in order to confirm that they are still compliant and reach the high standards to hold onto their title.
An added safety net adopted by many of the top compliant umbrella companies is utilising the service of real-time auditing service SafeRec. SafeRec use their 5 fundamental principles to not only help umbrella companies ensure compliance on their end, but the monthly audit reports provided to agencies or end clients allow full transparency- an absolute must-have with the upcoming changes.
Review your rates
The changing of PAYE responsibility wasn’t the only thing announced in the Autumn 2024 Budget. The rise of National Minimum Wage (NMW) and heightening of Employers National Insurance Contributions (Employer’s NIC) also add an extra level of consideration for agencies and end clients alike.
It is important to ensure that you pay close attention to how the changes will be effecting every contractor’s net take-home pay- especially those who fall on the lower end of the pay scale. Although higher earning contractors are likely to be unhappy with the potential lowering of their net take-home pay, it is imperative that lower-waged contractors are not left clutching at their pennies by risking paying funds which would leave them earning less than the new NMW; a serious breach of compliance. It is important to utilise the KID for each contractor and work in partnership their umbrella company in order to confirm what the updated daily or hourly rate must be in order to ensure that the contractor’s rate is still offers an acceptable level of take-home pay. Contractors must be kept in the conversation, with new contracts or communications issued to confirm new rates and to avoid any backlash from a contractor who may not have kept so up to date with the new rules.
The thought of reviewing rates can seem a daunting task. However SafeRec, using their contractor focused name of PayslipBuddy, have created a handy provisional calculator for tax year 2025/2026 for contractors and agencies to start having a look at what rate will give the same rough take home pay. Please note that this is only for provisional estimates and not yet confirmed to be as accurate as possible.
Keep an eye on government updates – keep an eye out on how responsibility is going to be shared for other things.
As part of the Finance Bill 2025, HMRC will be producing draft legislation and provide a Tax Impact and Information Note on tackling non-compliance in the umbrella market. Full details of how they will be implementing this will be provided and stakeholders will have the chance to provide their feedback. It is advised to keep a close eye on the government websites for online tools and guidance to help businesses prepare.
Learn the warning signs of a non-compliant umbrella company
Sarah Ellwood, managing director of Supertemps, has stated that:
“Uncompliant umbrella companies can do a lot of damage, not only to the reputation of a recruitment agency but also that of end employers, and there can be financial penalties and tax implications for both.”
It is imperative that agencies and end clients keep up to date with the latest signs that an umbrella company is non-compliant. HMRC regularly publishes the latest information on those who have been found to be non-compliant within the umbrella company market. The extent of this list is a true testament to how many ways unruly umbrella companies try to make money at the expense of both the contractor and the agency.
Main red flags for non-compliance
- Lack of transparency – all umbrella company contractors must have the full breakdown of the costs included clearly on their pay slip, including the breakdown in company costs, to ensure complete compliance.
- Unrealistically high take-home pays and/or very low margins – if it seems too good to be true, then it is too good to be true. All compliant umbrella companies should be offering the same rate of take-home pay with the only difference being the level of margin which is charged and the service they provide.
- Lack of awarding bodies – always make sure that an umbrella company is accredited by FSCA or Professional Passport.
- Offering to pay into a contractor’s limited company accountant – using an umbrella company means that all taxes must be deducted before being passed onto.
- High numbers of negative reviews – If concerns about an umbrella company are coming straight from the contractors using their services, then this is a major red flag and definite sign that the company needs avoiding.
- Any indication that it could be considered a Mini-Umbrella – mini umbrella companies are on the rise, with some predicting that the rise in employment allowance will catapult more into the market.
Wanting to ensure your PSL is as compliant as possible? Take a look at our top 10 recommended compliant umbrella companies. Each umbrella company recommended is either FCSA or Professional Passport accredited to ensure the highest levels of compliance for your business.
