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How to spot a genuine and compliant Umbrella Company

Compliant umbrella companies offer a crucial service to contractors, providing continuity of employer and safe and effective payroll, so that you can focus on doing your job. 

But with the cost of living spiralling, many of us are looking for ways to save money. And with the umbrella industry as yet unregulated, crooks are using the industry to make fast cash on contractors who want to reduce their costs. This means that contractors might be lured into working with umbrella companies that aren’t quite what they seem.

In this article, we look at the kinds of scams that non-compliant umbrella companies are running, how to spot them and, more importantly, how to avoid them.

Avoid: Any company that lists “free” payroll services

An umbrella company’s primary function is to provide payroll services to contractors. But just like everything else in life, this doesn’t just come out of thin air. Manpower, software, and administration are all involved in carrying out weekly payroll, and this takes time and money. In addition, umbrella companies are a business, with expenses such as marketing, administration, and other overheads, and must make a profit.

Any umbrella company that is advertising free payroll services must be making their money from somewhere other than the service they have been set up to offer. This should really set the alarm bells ringing, as it is likely that they are making their money in an underhand way (from you!).

Avoid: Any company that suggests you could make tax savings

One huge benefit of working with an umbrella company is continuity of employer. This means that a contractor who works on changing contracts can still access credit and other benefits which would usually only be available to someone with stable employment. 

As the umbrella company is essentially the contractor’s “employer”, it takes care of all tax and NIC’s and other financial responsibilities which must be applied to your pay. This means that as the contractor, you are trusting your umbrella company to pay your tax obligations on your behalf, before releasing your net pay to you.

Unfortunately, there are lots of non-compliant umbrella companies out there that lure contractors with the promise of tax savings. Most of these are tax avoidance scams which are designed to take your money and leave you with unpaid tax bills and hefty fines. Tax avoidance schemes like this work in several different ways, but they will often pay a small “salary” which is under the tax threshold, while releasing further money to you under the guise of loans or other additional payments. This is illegal.

HMRC name and shame list

The HMRC is cracking down on tax avoidance schemes, and now lists known schemes and promoters of tax avoidance schemes on their website. This is a great step in the right direction, but it has been criticised as being too little too late. It takes some time for schemes to appear on the list, and companies will only appear on the list for a maximum of 12 months, before they are removed. 

Before signing up with any umbrella company, check the HMRC list first, even if they seem legitimate.

What are the FCSA Codes of Compliance?

One way to be sure that the umbrella company you are working with is compliant is to check the FCSA website on their Directory of Members. You can search for a specific company or browse the list.

Don’t just take an umbrella company’s word for it, it takes just seconds to check the FCSA website. 

And even if an umbrella has been recommended by your recruiter, do your own homework and check for compliance. There have been several instances of non-compliant umbrellas managing to trick their way onto recruiters Preferred Supplier Lists.

The liability is always with the contractor

Remember that the contractor is liable for any tax owed to HMRC, so even if you were unaware of any tax avoidance, you will still owe any unpaid tax and possibly fines. And while the HMRC time limit for investigation is usually four years, they can go back as far as 20 years if they think that tax avoidance has been deliberate.

Working with an umbrella company can provide contractors with lots of benefits, including continuity of employer and carrying out your tax and NIC calculations. But because the industry is currently unregulated, contractors must be vigilant to ensure that they are working with a compliant umbrella company. JMK Group UK is a fully compliant umbrella company and CIS contractor provider, and we are accredited with FCSA. Don’t hesitate to get in touch if you have any questions.

HOW JMK CAN HELP YOU

Since 2002, JMK have been compliantly consolidating back-office, accountancy and payroll functions. 

We have evolved to provide a range of expert services; such as Funding, becoming a leading provider to the contracting industry.

We know every agency is different in some shape or form, even if only by a little, but important bit. Combining our knowledge and experience of multiple sectors enables JMK to support you all from recruiters and payroll, through to finance, compliance and management.

With JMK as your trusted partner, even the smallest team can process the largest payroll, regardless of payroll type.

Have a look at the wide range of services our Funding can provide to you and your business, it is far more than just payroll and finance.

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