Approved Umbrella Companies

A number of Umbrella Companies claim to be ‘approved’ but just who is approving them and is there any real meaning to the status?

Whilst there is bound to be some form of review process, it is always worth checking out whether there is any commercial interest for the parties involved. As the following information suggests, there usually is:

Umbrella Company Comparison Websites
Comparison websites will ‘approve’ Umbrella Companies but it’s usually the advertisers that are favoured and feature at the top of their league table regardless of the service they offer. More worryingly, you will frequently find companies advertising schemes that could land contractors in hot water, offering unrealistic take-home pay percentages through various mechanisms.

Independent Audits
There are several organisations that claim to be independent and unbiased but have actually been founded by other Umbrella Companies. In essence, the founding companies are setting their own bench marks that other Umbrella organisations will need to pay annually to remain ‘approved’. This is hardly unbiased as one would have to presume that the bench marks are set against their own standards otherwise they themselves would fail to make the grade!

‘HMR&C Approved’
HMR&C doesn’t approve Umbrella Companies. HMR&C will grant an Umbrella Company a dispensation but this is where the misleading advertising starts. A dispensation is purely to save the Umbrella Company extra admin – all large Umbrella Companies have a dispensation! Without this, the company would need to see receipts for every single expense claim that they process. The dispensation gives maximum amounts for the most commonly claimed expenses, for which the Umbrella Company won’t need to see receipts.

**** Please note that as of 6th April 2016, dispensations were revoked and as such any company will now need to see receipts for any expenses that are processed, if this is applicable. ****

Furthermore; service providers who advertise that their tax-saving scheme have been fully disclosed to HM Revenue & Customs have neither its ‘approval’ nor its acceptance according to tax avoidance manual spotlights:

“Please note that the issue of a SRN (Scheme Reference Number) does not mean either that HMRC 'approves' the scheme or that HMRC accept that the scheme achieves its intended tax advantage.”

The document further warns against a number of tax planning schemes to be wary of as they are likely to be challenged by HMR&C.

Tax QC Approved
A number of schemes claim to have been approved by a leading tax counsel - details are disclosed to the tax QC and they give their opinion as to whether they believe the scheme works. Sadly, an opinion is just that, an opinion. Was the QC given full details of how the scheme operates and what was their actual opinion? Regardless, the opinion is not something you could rely on in court when HMR&C are trying to recover the underpaid tax.

The phrase ‘approved’ is used to sound very reassuring to new contractors but ultimately offers no protection what so ever. Unless the Umbrella Company has been reviewed by an independent, professional body, with no links to any other Umbrella Company or someone who has an interest in the industry, the status of ‘approved’ is virtually meaningless and should be taken with a pinch of salt. In the cases of the third and forth scenarios, the best advice we can give is – if it sounds too good to be true, it usually is!

If you would like to discuss anything you have read on this page, you can contact one of our expert advisors on 01206 713 680 or email us at info@contractorumbrella.com