Oct 11 - Is HMRC Right to Target Umbrella Companies?

It now seems clear that Umbrella Land is under attack from an army of Inspectors from the Labour Provider Unit who are based in a network of offices across the UK and form part of HMRC’s Specialist Investigations Compliance Team .      

Under keen investigation at the moment is the “control” aspect of the employment relationship between the worker and his/her employer.  However, the same question arises time after time - Who is the employer? 

I am afraid to say that the plain fact of the matter is many umbrella companies are unaware of the basic requirements of being an employer preferring instead to act like an intermediary payroll provider.  This approach can have all kinds of consequences for both the hirer and the agency.  The umbrella can usually point to the fact that it employs its workers under a guaranteed hours contract of employment, operates a clear an unambiguous expenses policy and a strict disciplinary and grievance procedure which are all aspects akin to employment i.e. what you would expect to see in an employment relationship.

Is this enough? – I don’t think so.

To ensure that the umbrella company can be considered an employer, it must understand a lot more about each employee including;         

·         location of work,

·         nature of the assignments,

·         type of work being undertaken,

·         expected timeframe for completion of assignment,

·         identification of a change in the assignment.

As this information should be gathered as part of the Agency Worker Regulations (AWR), perhaps umbrella companies now have the ammunition to fight back on two fronts – against the agencies who have, in the past, failed to provide such information and HMRC who have suggested that the umbrella company is no more than a glorified payroll company.  

In the absence of any “control” information, HMRC is unlikely to accept that the guaranteed hours contract alone will constitute an employment relationship between the umbrella and the worker, leaving the way open to pursue the “true” employer which could be the hirer or the agency.