Umbrella companies are 'immoral parasites', NHS told

The most sharply-worded appeal yet for an outright ban on umbrella companies has been sounded -- this time to the NHS.

The Unite union described umbrella companies yesterday as “simply parasites,” saying they are just “feasting off” the wages of paramedics, nurses, porters and doctors.

It called such companies “immoral,” and vowed to begin “targeting” individual NHS trusts which use umbrellas by demanding “they pay back the money” to NHS staff who used them.

The union’s latest attack on umbrellas -- it has launched several in the past -- stems from its belief that those who use umbrellas, “lose 46 pence in the pound of eligible earnings.”

It repeatedly listed the many (legal) deductions that umbrella users’ face, such as National Insurance (both employer’s and employees’;), income tax, and the umbrella’s margin.

Further potential deductions that umbrellas make were also sneered at by Unite, such as those relating to pensions auto-enrolment, and ‘rolled-up’ holiday pay.

But the latter has been unlawful since 2006 under the EU Working Time Directive, so not all umbrellas operate it -- compliant ones are known to frown upon it.


It is this failure in much of Unite’s pointed critique of umbrella companies to separate the rogue from the reputable that is displeasing umbrellas’ supporters.

The Freelancer and Contractor Services Association (FCSA) says it is “disappointed” that Unite is “tarring all umbrella companies with the same brush.”

However, seeming to justify the need for a blanket ban, Unite’s health officer Colenzo Jarrett-Thorpe said the NHS has admitted that some umbrellas placing workers on its wards are simply illegal.

“The NHS…response is entirely inadequate, [because] workers are being ripped off and exploited and their message is essentially that it is down to individual trusts if they allow umbrella companies or not.

“It is especially alarming that the NHS is aware that there are illegal umbrella companies operating in its environs and they are still not prepared to ban them,” he said.

'Outside of tax rules'

Unite explained that it contacted NHS Improvement after several of its members working in the health service complained of exploitative treatment by brollies, in relation to pay.

It is then that the NHS regulator apparently said it was “aware of some umbrella organisations that are working outside of tax rules.”

But the union blamed the root-cause of its workers using brollies on the off-payroll rules, saying: “In April this year the government introduced new rules which effectively outlawed agency workers operating in the public sector from being paid on a non-PAYE basis.”

Despite the claim, NHS Improvement said in June it was reversing an across-the-board ban on non-PAYE workers which it had put in place to try to reflect the new rules.

Regardless, the April rules do allow for agency workers who use PSCs to continue to be used in some circumstances (if their end-user decides they are outside IR35, potentially by using the ESS/IR35 digital tool.)

However, the 430,000 workers estimated by the government to be using umbrella companies have had another impetus -- the false self-employment legislation of April 2014, which Unite acknowledged.

Julia Kermode, chief executive of the FCSA, is more concerned about the proliferation of offshore loan and disguised remuneration schemes, which she claimed more workers are turning to in light of last April’s reforms.

'Due diligence'

And there’s more legislation to come. “The new Criminal Finance Act coming into force on September 30th will also pose an additional risk for agencies to manage as they could be accused of not preventing tax evasion if they put contractors in touch with such dubious schemes.”

Ms Kermode, who advocated that contractors carry out ‘due diligence’ checks, also said: ”It is important that agencies and contractors choose compliant umbrella firms to partner with and I will also be raising this with NHS Improvement.”

Yet umbrellas are not mandatory. “Unfortunately legislation is forcing the public sector to be paid via PAYE, not forcing the use of umbrella companies,” said Contractor Umbrella.

“Many public sector bodies do not have the necessary in-house skills or time to be able to make the deductions at source for all employment taxes, thus the simplest and most risk-averse approach is to use umbrella companies.”  

Managing director Lucy Smith added: “The IR35 status rules have been misused for years by many contractors working in the public sector according to the government, most of whom should have always been “deemed employees”, and where this is the case the government will simply argue that they should have been paying the correct taxes in the first place.” 

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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