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It might surprise you to learn that, unlike banks, building societies and insurance companies, umbrella companies are not legally regulated. You may ask why that is when they deal with millions of pounds of other people’s money every year, tempting rogue opportunists into illegal activity. Here we learn about accreditation and look at how trustworthy umbrella companies address the issue of compliance. 

Government consultation

In June 2023 the Government launched a Consultation into ‘Tackling non-compliance in the umbrella market’. This was as a result of its Call for Evidence: Umbrella Company Market that had over 400 responses on the issue of how to tackle non-compliance, which it acknowledges is damaging ‘workers, businesses and taxpayers’, and whether the umbrella market should be regulated. 

In the document the Government suggests that its three main objectives for the umbrella company market are to:

1. Deliver improved outcomes for workers

2. Support a level playing field in the market

3. Protect tax payers from revenue losses that arise from non-compliance.

In the document the Government outlines what steps it has already taken within the umbrella market. They include things such as updating its guidance for contractors who work through an umbrella company, and publishing information about Key Information Documents (KIDs) to better inform contractors. It has also used its new powers to ‘name and shame’ promotors of tax avoidance schemes more quickly than previously, stating that this helps to protect taxpayers and enables contractors to make an informed choice. 

As to the future, the Government promises to publish further guidance for recruitment agents on supporting contractors and due diligence best practice later in 2023. It also mentions an idea that tax avoidance scheme promotors who fail to act on legal notices to stop their promotional activities will face criminal charges, and that company directors who are involved in such schemes are speedily disqualified. You can read more about the ‘Tougher consequences for promotors of tax avoidance’ consultation here. 

In order to regulate the market, the Government says, umbrella companies must first be defined in law, and welcomes discussions of what that definition might be. But what can recruiters and contractors do in the meantime?

Current accreditation

Currently the umbrella market relies on operators to achieve accreditation in order to prove that they are honest, above board and trustworthy. The main body which provides accreditation is the Freelancer and Contractor Services Association (FCSA).

FCSA represent industry members and are committed to raising the standards of compliance within the umbrella industry as well as provide assurance for contractors and recruitment agents alike in the form of rigorous assessments of umbrella companies, in order to be proven compliant. The assessment process iinvolves compliance within HMRC’s tax rules, financial viability, the ability to handle volume processing, the length of time the umbrella has been operating, Fit and Proper Person checks, independent assessment, and proof that applicants adhere to the organisations’ required standards. You can read more about the FCSA’s Charter and Codes here.

In the absence of legal protection for recruiters and contractors when they’re dealing with umbrella companies it’s reassuring to know that some umbrellas hold honesty and responsibility higher than others. The only way to be completely sure that the umbrella you’re dealing with is compliant is to make sure that they’re a member of the FCSA.. Here at Payme, we’re proud members of the FCSA, both for our Umbrella and for our Construction Industry Scheme (CIS) products and as such we’re honoured to display their logo on our website as our guarantee of compliance and best-practice. 

The Government Consultation closed on 29 August 2023. We will be following the results of the consultation closely and will let you know its results as soon as they are available. In this article we discuss the possible outcomes of the consultation. 

We cover this and other topics in our latest guide: Navigating the Storm: Essential Strategies for Choosing the Right Umbrella Company. Click here to request your copy.  

If you’d like more information about our FCSA Accreditation or the compliant products that we offer, simply call us on 0333 200 0845, email us at [email protected], or fill in the contact form here.