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A warning for umbrella company contractors

freelancesupermarket.com newsroom

RSS 09 February 2010
Recruitment law specialist Lawspeed is urging recruitment agencies to protect themselves against the potential of umbrella companies folding.

They recommend agencies take the following steps:- ·

  • Investigate service providers comprehensively
  • Never recommend them unless they have been fully checked
  • Do not depend on third party certification or compliance claims even from recognised trade bodies
  • Ensure you have the correct contract in place to safeguard your own and your workers funds

This follows reports that a large umbrella company owes debts of £10.6m to HMRC and that another two "umbrella service providers" have not paid their contractors. Adrian Marlowe, the chairman of ARC, says there are not enough checks and balances in the unregulated umbrella industry.

He warned that although umbrella companies say that they comply with government regulations, HMRC are currently particularly concerned about the wrongful expense payments issue. Where an investigation by the revenue determines that the rules have not been applied correctly, umbrellas usually receive a demand notice to settle the correct level of tax soon after.

That can lead to a situation where the umbrella becomes insolvent and simply folds. In such instances it is totally possible that funds received from recruitment agencies are used to pay off HMRC and other secured creditors before a worker gets anything. In such instances the agencies will get the full force of the worker's complaints, and everybody involved in the chain is unhappy.

Marlowe also said that whilst agencies have been focussing on ensuring they are not left open to debt transfer under the Managed Services Legislation, it is vital that agencies ensure that they have a fall-back position in case an umbrella company does not pay the workers. Agencies should not be lulled into a false sense of security just because an umbrella claims to be compliant.

Given the Revenue's current investigation procedures it is imperative for agencies to ensure they have the right processes and contracts in place. An Agency should never depend on accreditation from third parties, or even the size of a business. These recent events should serve as a warning to all, and almost certainly people's perception of the umbrella industry has once again been damaged.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.
Image: Spiderman and Froggie's lunch is about to be rudely disrupted by kevindooley

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