HMRC guidance provides clarity for umbrella workers
The government has now published specific guidance for workers operating through umbrella companies which explains the nature of the arrangement and payments.
This explains clearly how an umbrella company relationship should normally operate, and follows the recent ‘umbrellagate‘ furore in which allegations have been made, amongst other things, that umbrella companies routinely deduct employer NICs from the worker pay.
The guidance helpfully highlights the difference between payments made by the agency (employment business) supplying the worker to the umbrella company and the payments the umbrella company makes to the worker, making it clear that the payment received by the umbrella from the agency is not the same as the umbrella employee’s gross pay rate.
It also identifies tax avoidance schemes such as loans, annuities and offshore arrangements providing details of how these should be reported. Crucially, the guidance refers to ‘umbrellas’ as businesses that employ agency workers noting that these businesses do not themselves provide work finding services. As such, they should be distinguished both from contract agencies and other non agency companies that may identify themselves as ‘umbrellas’ but do not employ the workers. Examples of the latter include PSC or self-employed advisory or engagement businesses. This distinction is relevant not only to contractors, but also to those agencies that work with ‘umbrella’ businesses who could be liable for tax claims if the business claiming to be an ‘umbrella’ does not in fact employ and/or pay the workers by way of employment income.
The guidance also reminds readers of the regulatory requirement for agencies to provide a Key Information Document (KID), which explains the payment the individual can expect to receive from an umbrella who employs them. The KID requirement has applied to all employment businesses for all new registrants since April 2020, but there is some evidence that not all agencies have been complying.
Adrian Marlowe, Chairman of the Association of Recruitment Consultancies and MD of Lawspeed said “we welcome this carefully worded guidance which follows widespread concerns at the wild and unhelpful claims being made which threatened some disruption following on from recent IR35 changes. Contractors lead to believing that the position was different from that explained in the guidance now knows the correct explanation which mirrors our own advice as explained in our previous two articles on the subject.”
For more information about recruitment and employment contracts, working with umbrella companies, umbrella tax compliance, and KID requirements, please contact Lawspeed on 01273 236 236 or [email protected]
Adrian, a highly experienced lawyer, founded Lawspeed in 1997. He is responsible for developing our extensive portfolio of products and services, including the widely used Lawspeed contract templates. Adrian is an expert on “recruitment law” and specialises in contracts, regulatory compliance, employment status and dispute handling. He is chair of the trade body the Association of Recruitment Consultancies, the only lawyer lead recruitment trade body in the UK. Adrian and his co-director Ravi devised Standards in Recruitment as a vehicle for helping drive up standards and compliance in the industry.
Adrian is our lead in discussions with the government over regulatory evolution. Apart from assisting with client support, Adrian’s primary role is research and development into methods of business delivery, our latest service Proterms being his most recent project. Adrian heads our IR35 lawyers team.