The recession and umbrella companies

[curleyted]

I've noticed that there are a few umbrella company representatives on here. I had a thought the other day - as the recession is finding bad companies wanting or straining the cash flows of even viable companies, is there any danger of umbrella companies going bust? And what will happen if they do?

Is there anything I can do to protect myself from this?

[Rob Crossland]

Hi,

An Umbrella Company is no different to any consultative based business in that if it sounds to good to be true then it probably is and could be exposing you to financial risk.

A larger company has potentially more safety in that the risk is probably spread amongst many Agencies/Clients. The real issue to consider is therefore that if an Agency/Client goes down owing money, will the Contractor get paid? If that same Umbrella Co has not got the full model in place - will they pay the Contractor regardless of the income from the Agency? I would suggest that the larger more established businesses will do this. An Umbrella say offering a "service" for £10 per week is (in general terms) less likely to have all the true characteristics than a well established one that takes employment responsibilities very seriously.

It may not be to everyones taste but these well established businesses are much safer - they tend to not push expenses and low fees as the solution and have compliant and safe attitudes. These same companies are also far less likely to be using crown money (PAYE, VAT) to expand or fund marketing.

As an ex Contractor I know where I would put my money.

Hope that helps,
Rob

[Martin Hesketh]

Hello there.

Umbrella businesses are just as "at risk" in the current economic environment as any other businesses. Well run businesses will survive and may well prosper in the current climate, whilst badly run businesses are at greater risk of failure. And if such businesses do fail, contractors' hard earned money is definitely at risk. Therefore, it is more important than ever for individuals to choose their umbrella supplier carefully.

I would agree with Rob's earlier comment. Whilst there are always exceptions, in my view, larger, more established businesses, charging a sensible price for the services provided with a strong compliance history are likely to be a safer option in these uncertain times.

The current economic environment will not only test the financial strength of umbrella companies, these times may also lead to greater compliance enforcement activity from HMRC. Times are tough in terms of Government tax revenues as well. Now is definitely not the time to be with a provider which is cutting corners on compliance.

Regards

Martin