3 umbrella problems damage umbrella reputation

Following the recent news that JSA Services Limited, part of the JSA
Group, owes £10.6 million to HMRC and has entered into a voluntary
arrangement and that two other “umbrella service providers” have left
contractors unpaid, agencies should take care to ensure they are
protected against umbrella failures, says the recruitment law specialist
Lawspeed.

Adrian Marlowe, MD of Lawspeed and Chair of the recruiter trade
body, the Association of Recruitment Consultancies, said “whilst
agencies have quite rightly been focused on making sure they are not
exposed to debt transfer arising under the Managed Services Legislation,
it is just as, if not more, important for agencies to make sure that
have a fall back position if the umbrella they are dealing with fails to
pay the worker. Claims of compliance by an umbrella should not lull the
agency into a sense of security – as recent events have shown that
sense can be false.”

The umbrella industry is not regulated and there are few checks and
balances in place. All umbrellas claim to comply yet the issue of
incorrect payment of expenses in particular is a current focus of
concern for HMRC. Where an HMRC investigation establishes that rules
have been incorrectly applied by umbrellas, a demand for payment of
correct levels of tax usually quickly follows. That can lead to an
insolvency situation and the potential for the umbrella to simply fold.
In those circumstances it is entirely possible that monies received in
from agencies can be used to pay off secured creditors and HMRC before
the worker gets a dime – leaving the agency to face the brunt of the
worker’s complaints, and everyone in the chain unhappy.

Adrian went on to say “given HMRC’s current policy of investigation
it is crucial that agencies ensure they have correct procedures and
contracts in place. Agencies should never rely on 3rd party
accreditation or the size of an organisation. Regrettably these recent
events have served as a siren warning for all, and without doubt have
again damaged the reputation of the umbrella industry.”

Lawspeed, which has a total focus on recruitment matters, has long
warned of the risks associated with some umbrellas and has developed a
range of services to help protect agencies.

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