The Importance of Choosing the Right Umbrella

IR35 for Contractors – Choosing the Right Umbrella Company
James Harris, Head of Compliance,explains the importance of choosing the right Umbrella company and the things you need to be looking out for.

It is estimated that there are some 500 Umbrella companies operating in the UK. With such a large selection, choosing the right one can be exceedingly difficult, especially if you’re new to contracting or accustomed to working through your own PSC without an intermediary. (1)

According to the low-pay report published in March 2021, tens of thousands of contractors are using non-compliant Umbrella companies, usually unknowingly.

At a time when many people are switching to Umbrella due to reforms to IR35, or “Off-Payroll”, it’s important to be able to distinguish between the good and the bad. Working with a non-compliant Umbrella can cost contractors and agencies dearly.

There are positives to using a good Umbrella company. For example, an Umbrella can be a good ‘safety net’ – allowing you to enjoy the freedom and flexibility of contracting compliantly while making the most of a wide range of employment benefits, such as pension contributions, sick pay and maternity/paternity leave, not to mention protection from non-payment of invoices. We’ve also enhanced our platform with JSA Rewards, a wide-ranging benefits and discounts programme available to all our Umbrella contractors.

However, when choosing the right Umbrella for you, it’s important to be vigilant. You need to make sure you’re able to identify non-compliant Umbrellas so you can choose a company you trust to operate compliantly and in your best interests, protecting your employment rights and enabling you to make the most of contracting compliantly.

Unfortunately, there are far too many companies that operate unethical and/or illegal schemes to ‘help’ contractors pay less tax or avoid adhering to their responsibilities with regards to workers’ rights.(2) Choosing a compliant partner will make your transition to Umbrella simple and easy, helping you to continue enjoying the flexibility of contracting.

How do you know the good from the bad?

When you’re choosing an Umbrella company, whether from your agency’s PSL or your own research, it’s important to remember that they will become your employer, so don’t take this decision lightly. We’ve categorised what to look out for into four key areas: Compliance, Clarity, Flexibility, and Experience.

With over 30 years of experience behind us, we’ve worked hard to ensure we’re addressing all areas of compliance and contractor concern, as evidenced in our decision last year to make furlough payments, despite there being no obligation to do so. Our approach is centred on meeting your needs as well as our legal responsibilities in one comprehensive market-leading Umbrella solution. (3)

1. Compliance

FCSA-Accredited
The main accreditation body for our industry is the FCSA (Freelancer and Contractor Services Association). FCSA accreditation involves a wide-ranging annual review by an independent legal and financial assessor, such as E&Y or Brabners solicitors. Since 2011, we have maintained a stable FCSA accreditation, passing through detailed audits year after year.

Dedication
We are passionate about our compliance-first approach, and we have made members of our senior management team available to work with trade bodies that advocate for compliance throughout the sector. Our Director of Accounting Services, Chris James, is currently Chairman of the FCSA, as well as working with ASCOR (Association of Compliance Organisations), a body that brings all parts of the government together to tackle relevant issues affecting the flexible labour market. ASCOR dedicates itself to protecting non-permanent UK workers, developing best practice, and supporting the raising of standards throughout the industry. I have worked in the industry for 16 years and I am supported by an expert team who ensure we are always one step ahead on compliance issues.

Trade Body Memberships
As part of our unrelenting dedication to compliance, we also pride ourselves on being Trusted Partners of APSCo (The Association of Professional Staffing Companies), as well as one of the first membership organisations of APSCo OutSource (the only trade body representing the outsourcing market), and a member organisation of IPSE (the UK’s only not-for-profit association dedicated to the self-employed). We’re always searching for ways to advocate for enhanced workers’ rights and protections in the flexible labour market, so working with bodies like APSCo and IPSE moves us closer to this goal.

2. Clarity

When you work as a contractor, you become part of a supply chain involving an end hirer and potentially multiple intermediaries, and it can be difficult to understand how your payments are calculated and processed. When you’re searching for an Umbrella company you can rely on, make sure they’re open and clear about their payments process. This will ensure you’re not overpaying tax while protecting you against getting caught up in non-compliant tax avoidance schemes.

Comprehensive Pay Illustrations
We know getting to grips with how you’re paid can be confusing, especially with various Umbrellas promising different rates of take-home pay. The reality is, if you’re comparing good, compliant Umbrellas which adhere to their statutory responsibilities, there should be very little difference in the net figure you’re quoted after all the necessary regulatory deductions have been made for things like tax and National Insurance.

We want to ensure you have complete confidence and a comprehensive understanding of how you’ll be employed and paid. So, if you’re considering Umbrella contracting and require a bit more information, we’ve created a video to explain how Umbrella pay is calculated.

Plus, before registering with JSA, we provide you with a detailed pay illustration tailored to your specific circumstances. Our pay illustrations provide details of the salary, hours worked per week, hourly rate, holiday pay, tax code and deductions, details of our Umbrella margin, and an accurate projection of your net pay. This ensures there will never be confusion about how much you will earn.

Our detailed pay illustrations also help protect contractors from disguised remuneration schemes.

According to HMRC, in 2018-2019, around 2,000 employers and 30,000 individuals were involved in disguised remuneration arrangements. (4)

Even though (post-April) the liability for incorrect tax payments under the new Off-payroll rules will typically fall to the end hirer or a supply chain intermediary, this does not necessarily extend to disguised remuneration schemes which may still hold the worker accountable for any shortfall in tax. Further, and where HMRC can evidence tax evasion, other parties in the contractual chain can also be held criminally liable for failing to prevent the facilitation of criminal tax evasion under the Criminal Finances Act 2017. HMRC has requested that the government tightens legislation to address tax loss from issues such as disguised remuneration which can be implemented retrospectively, so choosing a compliant Umbrella now will avoid liability later on.

Click here to get your tailored pay illustration now and see how your pay would be calculated with JSA Umbrella.

Key Information Documents
From April 2020, it has been a legal requirement for recruitment agencies to provide a ‘Key Information Document’ to workers before agreeing to any terms. To help our agency partners with this obligation and ensure our contractors know exactly what to expect from their terms of employment (guaranteeing they’re receiving the desired benefits and necessary legal protections) we’ve created a downloadable KID template. View it here.

Ongoing advice/support
As a contractor with Workwell, if you have any further questions at any time – from your initial conversations through to receiving your payments or understanding your tax responsibilities – we’ll be on hand to help you.

Our role is all about helping you make the most of contracting and enjoy the ease and flexibility of this way of working. We’ve created a range of free downloads and videos to answer some of your FAQs and our experienced support team are available 8 am-8 pm Monday-Friday, and 9 am-12 pm on Saturdays to answer any questions you may have.

3. Flexibility

IR35 Switch
In a recent survey of our contractor base, a significant percentage were unsure about whether they would continue contracting if they were unable to use their PSC in the long-term. Anticipating this response, we created IR35 Switch.

As a firm of accountants with over 30 years of experience in this sector, Workwell has offered both accountancy services and Umbrella employment to hundreds of thousands of freelancers. IR35 Switch is a solution that offers employment through our FCSA accredited Umbrella solution for any ‘Inside’ IR35 roles, plus an FCSA accredited accountancy service to your PSC. This allows you to switch seamlessly between your PSC and an Umbrella solution where required, whilst maintaining the benefits offered by both. Click here to find out more.

Private pensions
As your employer, an Umbrella company must offer to enrol you into its pension scheme.

At JSA, we offer our own pension scheme but we also allow you to bring your private pension or SIPP with you for no added cost. This is great for those who are switching to Umbrella from PSC as a result of IR35, or contractors who want to make the most of our IR35 Switch option.

4. Experience

With over 30 years of experience in payroll and accountancy services for recruitment agencies, freelancers and contractors, we support thousands of workers and process almost half a million payments annually to help people like you make the most of flexible working.

Agency support
We understand the importance of a good relationship with your agency and are committed to consistently looking after our workers and protecting the supply chain through the use of clear communications, fair policies, and rigorous processes with our agency partners, helping them provide the same to all their contractors.

For all our agency partners, we offer training for consultants, support with client briefings and communications to contractors, regular updates on legislative changes as soon as we get them, a suite of helpful resources, and contractor events to ensure the entire supply chain is on the same page. We find this not only helps our agency partners to act compliantly and confidently, but it ensures all the contractors we pay through JSA Umbrella have a comprehensive understanding of the flexible labour market and any events/legislative changes that may impact them.

Well-established & Compliant
When researching Umbrellas, you may come across mini-Umbrellas or Umbrella companies that offer extremely high rates of take-home pay. It’s important you’re aware of the non-compliant aspects of these kinds of companies and avoid them to protect yourself against future liability.

A note on mini-umbrella companies

Mini-Umbrella companies are often created through the fragmentation of an Umbrella company workforce into lots of individual companies, often with a director based overseas. This not only hinders HMRC’s ability to regulate taxes, as such companies may fraudulently claim the Employment allowance and exploit VAT flat rate schemes, but it also causes a whole host of issues for contractors. Often, employees of these types of companies will be moved from one mini-Umbrella company to another, meaning in some cases they’ll never be with one employer long enough to establish a continuous record of employment, and will likely suffer with tax code changes and the additional administration involved with moving ones employment.

To avoid such issues, ensure you’re working with an established Umbrella company, like Workwell, that can clearly explain and demonstrate how your payments are processed and has years of compliance knowledge and expertise to back up their claims.

Summary

By doing your own research to select an experienced Umbrella, like Workwell, with decades of experience, a proven compliance focus and clear communication, you can ensure that you won’t be caught out or tricked into paying more or less than you should. Plus, you can retain all the things you love about contracting – enjoying the freedom and flexibility to work how and when you want while having peace of mind that the compliance and payment responsibilities are taken care of, ensuring you won’t be faced with HMRC challenge or financial liability in the future.

There is a whole range of benefits that come with working with Workwell Umbrella, which you can explore here or get in touch to find out more.