Umbrella companies have experienced a rapid increase in demand in the build-up to off-payroll changes in the private sector (IR35). To help educate temporary workers, the supply chain, and interested third-parties, the Low Incomes Tax Reform Group (part of The Chartered Institute of Taxation) has released a thorough ‘technical report’ that discusses umbrella companies in detail we’re not sure we’ve seen before. The report is over 140 pages long and covers everything from umbrella company holiday pay, disguised remuneration, umbrella company benefits, Key Information Documents (KIDS), potential issues, and more. If you are considering using an umbrella company for your payroll, we highly recommend checking out the Labour Market Intermediaries report by the Low Incomes Tax Reform Group (LITRG). Keep reading to find out more.
With 11 chapters, multiple appendices and over 140 pages of information, the report is pretty unique and is exceptionally thorough. We’re not going to pretend to have read every word – there certainly are plenty! However, the general gist is not damning for umbrella companies. Instead, it helps paint a picture of the umbrella company marketplace and provides valuable advice to contractors and stakeholders about using umbrella companies. Ultimately, it appears to reiterate the importance of choosing a compliant umbrella company for your payroll. The report discusses disguised remuneration schemes – unethical tax arrangements that could land temporary workers in serious trouble with HMRC. It also discusses mini-umbrella companies, one of the latest schemes to target vulnerable contractors and freelancers.
View the report: Labour Market Intermediaries by the Low Incomes Tax Reform Group
It’s always fun to see a page dedicated to interesting stats – often supported with beautiful graphics. The Labour Market Intermediaries report doesn’t disappoint. Remarkably, there are over 500 umbrella companies in the UK – hundreds more than there were a few years ago, as new payroll companies seem to pop up overnight. New legislation has resulted in over half a million temporary workers requiring umbrella companies for their payroll. With such a high demand for umbrella companies, a report like this is most welcomed. We sincerely hope it helps clear up and common misunderstandings about umbrella companies in the UK.
Victoria Todd, the Head of the Low Incomes Tax Reform Group, said the following about the report:
“This report sheds light on an under-researched part of the labour market.
Many people think that umbrella companies exist only to exploit the tax system and lower-paid workers. That is not the case. They perform a number of useful and legitimate functions such as taking on the payroll and HR function of temporary work agencies who can’t or won’t do this in-house and providing an alternative route for freelance contractors who would otherwise have to work through a limited company.
However, there is a minority of umbrella companies whose bad practice and non-compliance sadly tarnishes the rest of the industry. This includes some set up specifically to operate disguised remuneration schemes.”
To see the full quote from Victoria Todd, please visit the official press release on the LITRG’s website.