Why Umbrella Companies Offer Agencies A Safer Way Too

There are currently more than 200,000 workers operating through umbrella companies in the UK and the number is growing every year. Contractors are abandoning limited companies in droves as legislation makes them ever more difficult to work through with ever decreasing tax breaks. Indeed umbrella companies are fast becoming the default setting for new old contractors alike. Seen not just as offering hassle-free contracting but also a safer and more HMRC friendly way to conduct business it is easy to see the appeal for contractors. This article will look at why they are also a great boon to agencies and highlight all the advantages they can bring to the recruitment sector.

A good umbrella company should offer its contractors a hassle-free working life and its agency partners hassle-free contractors. – Greg Dickson – Director

Ask Not What You Can Do For Your Umbrella Company…

A good umbrella company will recognise the importance of building partnerships with agencies that are beneficial to both partners. As an example, here at Hamilton Bradbury, we have spent years dealing not just with contractors but also the agencies that find them work and we understand how complex it can be to manage contractors from varying industries, sectors, countries, backgrounds and using different tax reduction vehicles. Having seen various Managed Service Companies and Employee Benefit Trusts (and other ultimately doomed offshore tax wheezes) come and go, we also set out to offer both our contractors and our agency partners absolute certainty when it came to compliance and HMRC. We did this as part of our overall aim of offering our contractors a hassle-free working life and our agency partners hassle-free contractors. This should be the aim of any good umbrella company, and if that umbrella company works correctly they should be able to offer an agency significant advantages by guaranteeing them the following things:


Crystal Clear Employment Status

Umbrella company contractors come to agencies with one distinct advantage over other contractors. They are not likely to attract the unwelcome attentions of HMRC. With HMRC targeting agencies more and more with legislation like the Agency Workers Regulations (AWR) and the Onshore Intermediaries Employment (false employment) legislation, the last thing an agency wants is HMRC breathing down its neck. Over the years anyone running an agency will have seen all manner of tax vehicles being used by the contractors coming through their doors, from Employee Benefit Trusts to Managed Service Companies to various Employed Solutions. All of these have come and gone as HMRC has gotten wise to them. Nowadays the only options realistically left are the limited company and the umbrella company. But even the limited company is not immune when it comes to IR35, which is why for absolute certainty umbrella companies are the safest choice. This was basically acknowledged by HMRC in their 2007 Managed Service Legislation, which noted that umbrella company contractors would not be affected. And when it comes to IR35, compliance is simply not an issue for umbrella contractors because they are working through PAYE and NIC’s. Which means no nasty surprises for an agency using umbrella contractors!


When It Comes To Insurance – You’re Covered!

This is not something offered by every umbrella company but here at Hamilton Bradbury all our contractors have full insurance included in the service we offer. That means every contractor we send out to an agency is covered for every eventuality, something both agencies and more importantly, their clients like to see.


Management of Payroll

Everything to do with payroll is taken care of by the umbrella company. The agency gets their usual fees but the umbrella company does the work! The umbrella company will manage the PAYE and NIC’s and leave the agency to concentrate on recruitment for their workers. (What’s more, here at Hamilton Bradbury we guarantee that our contractors get their money the same day we do!)


Free Back Office Agency Support

When an agency partners with an umbrella company they will benefit from all the back office staff and support of that umbrella company – all of whom are there to assist the contractors in any way they need. This could be related to employment issues, taxation, payroll, expenses or breaches of contract. Either way, the umbrella company would handle it so the agency doesn’t have to, leaving the agency free to concentrate on their work.


A Dedicated Account Manager for the Agency

Again, not all umbrella companies offer this, but here at Hamilton Bradbury we value our agency partners as much as our contractors. So an agency will be assigned a dedicated account manager to help them with anything that comes up.


Love is … Never Having to Worry About AWR!

Pick the right umbrella company and an agency will never again have to worry about the bane of recruitment agencies lives – Agency Workers Regulations. Most of the high-end, respectable umbrella companies have either adopted the Swedish Derogation Model or, like us, use a professional services contract that exempts their contractors from the AWR. If an agency partners up with the right umbrella company, then AWR will never bother them again.


And Finally – Full, Across The Board Compliance!

Put simply, umbrella company contractors are never going to cause any compliance issues whatsoever. As mentioned above, their IR35 compliance is simply not an issue as they pay PAYE and NIC’s and the same applies to AWR (so long as the agency chooses an umbrella company that has put in place the correct measures.) But it doesn’t stop there. More importantly for recruitment agencies, umbrella company contractors are also unaffected by the Onshore Intermediaries Legislation relating to false employment, (as well as the TAAR) which has been targeted directly at recruitment agencies and which could cause agencies some serious hassle, placing the burden of establishing ‘supervision, direction and control’ (or the lack thereof) on the agency. Why? Because as with IR35, umbrella company contractors are already getting paid through employment income and paying PAYE and national insurance. They do not, therefore, meet any of the conditions of that legislation, or any other legislation, relating to false employment.


There are many more reasons why agencies should work with umbrella companies, from RPO solutions to iD verification, but compliance issues alone should be enough to persuade any agency out there to want to work with umbrella contractors above all others.