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There are currently over 60 umbrella companies on HMRC’s ‘naughty list’: those companies that have been named and shamed as tax avoidance schemes. However, with over 500 umbrella companies operating in the UK at the moment, compliant companies are concerned that this list is just the tip of the iceberg. Here we look at the fact that while the list is a good thing to reference when you’re considering an umbrella company, there’s more to making that choice. 

 

Regulation

At the moment there is no specific regulatory framework for umbrella companies like there is for recruitment agencies. This means it’s up to them to adhere to the spirit and the letter of the law when it comes to decent, honest conduct. In 2021 the Government launched a ‘Call for Evidence’ into the Umbrella Company Market. The Government has already said that it intends to bring umbrella companies within a regulatory framework, with a single enforcement body proposed as the answer. In its introduction, the Call for Evidence acknowledges that it has concerns about non-compliant umbrella companies which not only fail to comply with employment law and offer little in the way of transparency over such things as holiday pay, fees, and hidden charges but also actively engage in tax evasion. 

However, since the Call for Evidence was concluded, little has been done with regard to these proposals, and the market remains unregulated, posing a serious threat not only to the public services which rely on tax revenue to function, but also to the prosperity and peace of mind of contractors who simply seek to make a living from their hard work and minimise their tax liabilities in a fair and compliant manner.

 

The FCSA

HMRC’s ‘naughty list’ expires after two years. This means that if a company has been added to the list, its name is removed after only 12 months, and it is free to continue to act in an unscrupulous manner until the next time its conduct is drawn to the attention of the tax man. It’s a recurring loop and many unwary contractors have been drawn into non-compliant arrangements that eventually focus HMRC’s attention on them.

So how can contractors ensure that the umbrella company they choose is both compliant and offers them the best products and standards of service? The answer is to check that the company they are considering is FCSA compliant. 

The FCSA – the Freelancer and Contractor Services Association – is the UK’s leading membership body for umbrella companies, and has supported its professional members since 2008. The FCSA offers accreditation to its members only after rigorous independent audits which prove that they adhere to its Codes of Compliance. In this way, it aims to raise standards across the board, and offer peace of mind to contractors.

Being FCSA-compliant allows umbrella companies to display their logo on their website – as you’ll see on Payme’s site – which verifies that the company has passed the rigorous compliance tests that the FCSA requires. 

A simple search facility allows contractors to search for accredited members – here is Payme’s page which offers a range of information about the company, when it is accredited until, the products it offers, and contact details, to make enquiries simple. The search facility also clearly displays if a company has had its accreditation status suspended, and when that suspension expires, alerting contractors to any issues that the FCSA has with the company in question.

In the absence of Government regulation, or even legislation to protect contractors from unscrupulous behaviour on the part of some umbrella companies, it’s fallen to the industry itself and the people who believe in compliance to do something about its reputation and uphold its values. 

Payme is proud to be FCSA-accredited and to call with them for better ways of protecting both contractors and compliant industry members. We’ll continue to act in the best interests of our contractors and industry partners to provide the best possible, most compliant service we can. 

Update 

The FCSA has been in discussion with HMRC about the guidance it offers to recruiters and contractors who engage with umbrella companies and has recently updated its web pages to reflect this. The guidance has been developed with input from both HMRC and the Department for Business and Trade as well as external experts such as the FCSA as part of its efforts to tackle non-compliance in the industry. Read our blog, New HMRC Guidance Thanks to FCSA Action for more information. 

If you have any questions relating to compliance or other umbrella company matters, you can call us on 0333 200 0845 email us at [email protected] or fill in the form at the bottom of the page here and one of our experienced and helpful team members will be in touch with you.