Contractors’ Questions: Will the Blakely case affect umbrella companies?

Contractor’s Question: Is the Blakely case really a “game-changer” as the Unite union claims, in terms of umbrella company work? Or does Blakely's "self-employed" engaged status, and occupation as a "pipefitter" put this case some distance from high-end professional contractors?

Expert’s Answer: The case is very interesting because of the tribunal, in finding both the agency and umbrella company to potentially be joint-employers. This gives a formal recognition that umbrella companies are employers for tax purposes only.

This is a point that HMRC has often made clear, the implication being that any breach of employment rights is not necessarily going to be the responsibility of the umbrella company, no matter how loudly the claim that ‘the umbrella company is the employer’ has been.

One of the currently open joint-consultations published by HMRC and BEIS [The department for Business, Energy and Industrial Strategy], has broached the idea that where umbrella companies claim to be the employer, then perhaps they must be regulated by the Employment Agency Standards inspectorate.

HMRC knows there are at least 400 umbrella companies operating in the UK classified as ‘employment intermediaries,’ just as employment businesses are, which was a big hint that few people heeded.

HMRC has recognised that umbrella companies reduce administration and regulatory burden in the temporary labour market. But negating the rights of workers was never going to be acceptable. This case finally makes this point crystal-clear.

The issue of illegal deductions from pay, (notably the umbrella company fee and the employer costs) has long been a flash-point. But if umbrella companies were honest with their 'employees' and provided a pay statement that accurately represented the workers' true pay rate, rather than disguising the agency rate paid to the umbrella company as the pay rate, there would be no confusion.

Of course, umbrella companies don't do this because agencies like to advertise the rate that would be payable to self-employed workers, while committing workers to be paid under PAYE and signed up with an umbrella company. Another one of the consultations raises the issue of accurate and timely pay statements, both prior to work commencing and the issue of a clear and transparent payslip.

This case and the ongoing consultations show the writing is on the wall for all umbrella companies, and HMRC is wielding a huge paintbrush, while BEIS is; to continue the analogy, holding the ladder.

This is going to bring about a change in the way that umbrella companies work, even the so-called reputable brollies who do disguise the pay rate, as that is almost a function of an umbrella company, but it doesn't have to be so.

The expert was former tax inspector and ex-umbrella company boss Carolyn Walsh, now the managing director of CWC Accounting Solutions.

Wednesday 22nd Feb 2017
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Written by Carolyn Walsh

With over twenty years’ experience in the sector, Carolyn assists freelancers, contractors, agency and umbrella company workers, interpreting tax legislation and guidance with a no-nonsense approach.
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