New report highlights benefits and complexities of umbrella companies

(3 minutes to read)

LITRG: ‘Many people think that umbrella companies exist only to exploit the tax system and lower-paid workers. That is not the case’.

New research has been published looking at the use of umbrella companies and other labour market intermediaries in the UK.

The report, compiled by the Low Incomes Tax Reform Group (LITRG) explores the benefits and complexities of umbrella companies, with the intention of helping to ‘increase public knowledge of how labour market intermediaries work and bolster the evidence base in this under-researched area’.

Victoria Todd, Head of LITRG, explained further, “This report sheds light on an under-researched part of the labour market.

“Many people think that umbrella companies exist only to exploit the tax system and lower-paid workers. That is not the case. They perform a number of useful and legitimate functions such as taking on the payroll and HR function of temporary work agencies who can’t or won’t do this in-house and providing an alternative route for freelance contractors who would otherwise have to work through a limited company.

“However, there is a minority of umbrella companies whose bad practice and non-compliance sadly tarnishes the rest of the industry. This includes some set up specifically to operate disguised remuneration schemes.”

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Victoria added, “One of the outcomes of the public sector off-payroll changes in 2017 was a mass shift of contractors into loan arrangements via umbrella companies. This did not end well. Serious and urgent work is needed to prevent this happening again with the private sector off-payroll changes being introduced from April 2021. A single enforcement body for employment rights, as is being considered by the Government, would help but is not on its own sufficient.

“While disguised remuneration is very topical, in order to understand the experiences of most umbrella company workers, it is important to look beyond it. What we found when we did that was very interesting and thought-provoking and will certainly help shape our future work in this area.

“Looking across the landscape in a balanced way, it is clear from our research that the general poor reputation of umbrella companies does not uniformly match the reality and is not deserved by many in the sector. It is important that this is acknowledged and that the balance is redressed.

“We hope this report will be used widely: by government and workers alike to gain a better understanding about where the issues lie; by umbrella companies and the industry to improve standards; and by policymakers and advocates to work out where best to direct energy and resources going forward.”

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