“HMRC Approved” Umbrella Company
HMRC doesn’t ‘approve’ Umbrella Companies. HMRC will grant an Umbrella Company a dispensation and this is where the misleading advertising begins.
IR35 compliant… it’s irrelevant!
The IR35 rules don’t apply to contractors operating through an Umbrella Company as your payments are processed through PAYE. Although the claim of ‘IR35 compliant’ sounds impressive, it’s completely pointless!
Act as ‘Employer’
According to new legislation Umbrella Companies must act as an employer. This means that you should sign a Contract of Employment and that you should receive the Statutory payments such as SMP, SSP, SAP and SPP; any umbrella company that makes deductions from your earnings to cover these payments is not fulfilling their legal responsibilities and should be avoided. The same applies to umbrella companies that make deductions to cover any liabilities under the Agency Worker Regulations.
Agency Recommended Umbrella Company
Some Umbrella Companies are known for paying referral fees in return for recruitment consultants sending their details onto new contractors.
Although there is nothing wrong with this in principle, it is increasingly becoming the case of who will pay the most for referrals, rather than passing on a company’s details because the consultant knows you will get good service from them.
It is also becoming more common that Umbrella Companies will form a contract with the agency, in exchange for referral fees, which locks them into passing on all their contractors solely onto that particular company. The contractor is given no choice; if they want a contract with certain agencies they will have to use the agency’s ‘preferred’ Umbrella Company, regardless of service levels or personal preference. This practice is restrictive and is rarely used to improve the contractor’s lot, more to line the agency’s pockets.
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