Government guidance on engaging umbrella firms ‘basic at best’

The government has published guidance described by one commentator as “basic at best” for recruitment agencies, outlining responsibilities that employment businesses have when engaging umbrella companies.

Released yesterday [30 November 2023], the guidance, ‘Responsibilities for employment businesses working with umbrella companies’, details the steps recruitment agencies should take to protect their own business, along with the workers engaged via umbrella companies and the wider supply chain.

From outlining the role that umbrella companies play in enabling the placement of temporary workers to the due diligence recruiters are advised to carry out before engaging one of these businesses, the document is designed to equip agencies with the knowledge they need to identify tax avoidance schemes posing as umbrella companies.

However, Julia Kermode, CEO of umbrella company compliance specialist PayePass, commented: “The government’s latest guidance on umbrella companies is basic at best. With tax avoidance schemes getting smarter and continuously exploring new ways to lure in recruiters and workers, this document is nowhere near comprehensive enough. It’s all straightforward, widely understood guidance that won’t stop a recruitment agency from falling into the trap of engaging a non-compliant umbrella company.”

Kermode went on to say: “I would say I’m surprised by the government’s alarming lack of action, but in truth, it’s an all-too familiar story. Rather than taking action – and by this, I mean regulating the umbrella industry and holding those facilitating tax avoidance responsible – the government continues to sit on its hands. As far as I’m concerned, half-baked guidance like this is little more than lip service.”

The guidance identifies examples of signs of mini-umbrella company fraud:

  • regularly having to reissue key information documents (KIDs) to workers because the umbrella company keeps changing
  • differences between the employer’s name on the latest KID and the latest payslip
  • frequent changes to the PAYE reference number which may be included on payslips.

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