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With much of the media’s attention understandably focusing on the Budget, you could be forgiven for missing another of yesterday’s key announcements; namely, a policy paper on the ‘tackling of non-compliance in the umbrella company market’.
‘Business as usual’ for Danbro Umbrella
As you might imagine, following the paper’s release yesterday, there has been plenty of speculation over the last 24 hours about what it means for our industry and the stakeholders within it. Much of this has been, frankly, rather unhelpful.
Firstly, this policy does NOT prevent businesses from continuing to use umbrella companies or other payment intermediaries to operate payroll on their behalf – as they do now. It will simply ensure that where businesses continue to do this, they will no longer be able to outsource the underlying liability of PAYE. They will instead become ultimately responsible if the umbrella company operating payroll on their behalf acts improperly.
Let us be absolutely clear; this is not ‘the end of umbrella companies’. In fact, it’s quite the opposite. The government are fully supportive of compliant umbrella companies like us. We welcome the action they’re taking and see no reason for alarm. We share the new government’s position on non-compliance and the low standards that have plagued the UK’s vital temporary labour market for far too long.
For years, Danbro Umbrella has banged the drum on the threat of non-compliance and the damage it does to our industry’s reputation. We’re a firm fixture in the supply chain and have been for almost a quarter of a century. We’re also amongst the UK’s highest ranked umbrella providers on Trustpilot, rated Excellent by over 600 reviewers.
We will continue to offer contractors industry leading employment benefits, including same day payments, comprehensive insurance cover, Danbro Rewards, private medical care, a private pension scheme, HR support, and discounted mortgage and financial planning advice.
Crucially, we’re already aligned with the new legislation. So, for us, it will simply be business as usual.
So What has The Government Announced?
Every year, non-compliance, malpractice, and criminality within the umbrella company market has a significant impact on the economy, including substantial tax revenue losses and worker exploitation. The government has now drawn a line in the sand on this issue, pledging a commitment to tackle it head on.
To give you an idea of the scale of the problem, in 2022-23 alone, an estimated 275,000 workers used non-compliant umbrella companies causing, in many cases, considerable tax losses through schemes like disguised remuneration and mini umbrella company fraud.
This draft legislation, which is set for implementation in April 2026, proposes to shift the responsibility for a contractor’s PAYE from umbrella companies to recruitment agencies and/or end clients. This, in turn, reduces the risk of workers unknowingly engaging with non-compliant umbrella companies, which may have previously exposed them to tax avoidance.
Agencies or end clients (in cases where there is no agency) will bear the legal obligation for ensuring accurate PAYE (income tax and National Insurance contributions) for umbrella company employees are made to HMRC. This means that agencies must ensure that correct deductions are made on all contractor payments, even in cases where they engage an umbrella company for their payroll processing.
Workers will continue to receive their pay net of taxes but, in the government’s eyes, they will be better protected against non-compliance. The government anticipates that this could protect approximately £2.8 billion from losses to non-compliance over the next several years.
In short, agencies which do not have a fully compliant supply chain in place by April 2026 are at major risk of falling foul of the new legislation.
Choose a Compliant Provider
Another myth circulating on social media is the claim that agencies are now responsible for paying Employer’s National Insurance (NI) and taking on employment obligations for their workers.
This is false.
Yes, under the proposals, agencies will become accountable for ensuring that umbrella providers are meeting their tax liabilities and that the correct amount of tax and NI is being applied to contractors. But the payment of workers is still facilitated by umbrella companies and employment responsibilities will also remain with us. This is particularly important with next year’s anticipated Employment Rights Bill on the horizon.
This is why selecting a compliant, FCSA approved provider is so important.
How can I protect myself against non-compliance?
It is essential that you do your due diligence when it comes to selecting a compliant umbrella company. Make sure you press prospective umbrella companies on their marketing claims. And check whether they’re independently audited. This is your livelihood, and you need to know you’re dealing with a provider whose affairs are clean, clear and above board.
Don’t forget, all UK umbrella companies are governed by the same HMRC rules. More often than not, if a potential provider promises things like ‘receipt-less expenses’ or conspicuously high take-home pay, it’s probably better to steer clear. Work on the basis that if it sounds too good to be true, it probably is.
If you’re unsure as to whether your provider is compliant, we recommend looking out for some of the following signs:
- The company promises that you can keep 80, 90 or 95% of your wages and be tax compliant.
- Only a fraction of your salary is paid through payroll and subject to PAYE. This indicates that you are only paying tax on part of your income.
- You are paid using a loan, credit or investment payment and the company claims this isn’t subject to income tax or NICs. This is tax avoidance.
- The payment from your umbrella company is not direct, but instead routed through various companies before it comes to you.
- Be aware, too, of companies who claim to be ‘approved by HMRC’. HMRC do not endorse any particular provider, so claims of this nature should act as a red flag.
At Danbro Umbrella, we have always welcomed scrutiny and encouraged regular auditing of our processes. It ensures that we’re operating properly, openly and transparently. This will continue regardless of any legislative change.
Protect yourself against risk
The main takeaway from this policy proposal is that non-compliance will pose an even greater risk moving forward. Now is the time to choose a trusted, credible provider like Danbro Umbrella.
We hope our credentials and reputation as one of the market leaders should provide you with the necessary reassurance that we can protect you from future legal and financial repercussions.
We’ll be providing regular updates and insights on further developments over the next 18 months.
Employer’s National Insurance contributions
Finally, a quick line on the change to Employer’s National Insurance contributions, revealed in yesterday’s Budget.
Employer’s NI is set to rise by 1.2% to 15%. And in what is perhaps an even bolder move the threshold at which businesses start paying national insurance on a workers’ earnings will reduce significantly from £9,100 to £5,000 (representing an increase of £615 p.a.).
The change is still several months away from implementation and we’re constantly in conversation with our agency partners – and end clients – to ensure that any changes made are done correctly, compliantly, and with advance notice to our contractors.
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